Stockchase Opinions

David Driscoll Xylem Inc. XYL-N DON'T BUY Dec 29, 2022

It's OK. Problem is still trading at 42x earnings, extremely rich. Price to book is 6.2x, which is very high. Price to sales also high. Payout ratio 48%, not a problem. Long-term dividend growth rate is 7%, the historical norm for public companies. Long-term compound 5-year return is 11%. At risk of PE multiple contraction due to increasing rates. He owns AOS and LNN. Yield is 1%.
$111.890

Stock price when the opinion was issued

environmental
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PARTIAL BUY

Fundamentals remain attractive. She likes the water industry and this is a rare pure-water company. Benefits from ESG fund flows, so the share price ran up to overvalue. It's now more attractive. The semi chip shortage is impacting their business, so they can't fulfill all their orders. Will take time to fill these orders this year. She's long owned this. Definitely hold this. She is slowing adding to her holdings.

PARTIAL BUY
Got ahead of itself. Higher interest rates are a headwind for a richly valued stock. You could start a position here around $85. She likes the water space, a scarce resource, and investors should have a position in it. A pure play, well positioned. Smart metering impacted by chip shortage.
BUY ON WEAKNESS
Water is a scarce commodity. XYL has a great run-up last year when ESG was popular, so the stock price got ahead of fundamentals. Shares have since pulled back, but you can start adding to this now. She's owned this for four years. The chip shortage is hampering demand, though. Demand for water infrastructure and services will endure.
BUY ON WEAKNESS

Dominant in water sector. One of the few publicly listed pure plays, so valuation tends to be elevated. Treat, transport, and test water. Clients are utility companies and industrials. Water is a scarce resource. Likes the new acquisition, accretive to earnings in the long run, will expand presence in the space.

BUY
Infrastructure Bill of late 2021 money is only trickling out now

Americans take clean water for granted. Xylem makes water and wastewater pumps and treatment equipment.

BUY ON WEAKNESS

Core holding for her, she trims when it gets pricey. Recent acquisition will broaden client base. Never inexpensive. US infrastructure bill is a tailwind. She buys on pullbacks.

BUY

It beat top and bottom lines last week but shares still sold off. They beat revenues and exceeded organic growth estimates. A great quarter.

HOLD

Owns share in company and will continue to hold. Rising interest rates and supply chain issues are behind the company (rates expected to fall). Would recommend holding. Strong business for long term investor. 

TOP PICK

There will be a water shortage, and he expects a lot of cities city spending on upgrading, maintaining and expanding their water systems. A recent takeover should be accretive,

(Analysts’ price target is $151.31)