Tags: Xylem | clean | water | XYL

Xylem at Forefront of Global Clean Water Business

By Greg Brown   |   Tuesday, 01 May 2012 02:20 PM

Xylem (XYL) is at the forefront of an industry some analysts believe is the next oil: clean water supply. Whether that makes its a hot stock to own today depends a lot on your view of the availability of water and of economic growth in the future.

Xylem is a global leader in water engineering, focused on water and wastewater products and services, including water transport, treatment, testing, building services, industrial processing and irrigation. Xylem’s industrial brands include Bell & Gossett and Flygt.

The company operates in two segments, water infrastructure and applied water. Water infrastructure focuses on the transportation, treatment and testing of water, offering a range of products including water and wastewater pumps, treatment and testing equipment, and controls and systems.

Applied water encompasses the uses of water and focuses on the residential, commercial, industrial and agricultural markets. The segment’s major products include pumps, valves, heat exchangers, controls and dispensing equipment. In both segments, the company provides aftermarket replacement parts and services.

Xylem sells its products in more than 150 countries through direct sales and independent partners. In 2011, approximately 64 percent of its revenues were generated outside the United States.

“Our planet faces a serious water challenge. Less than 1 percent of the total water available on earth is fresh water, which is declining due to factors such as the draining of aquifers, increased pollution and climate change,” Xylem management told investors in a recent filing.

“In addition to this declining supply, demand is rising rapidly due to population growth, industrial expansion, and increased agricultural development, with consumption estimated to double every 20 years. By 2025, over 30 percent of the world’s population is expected to live in areas without adequate water supply.” Xylem figures the global market size to be $500 billion.

Analysts take a more pragmatic view of the immediate opportunity, putting the company in line with the general market and heavily reliant on economic growth going forward.

Xylem has a market cap of $5.22 billion in a sector, machinery, where the average company size is $7.23 billion. Its projected earnings per share growth for the coming year is 12.17 percent, lower than the sector average at 15.90 percent.

Demand driven


Analysts are neutral across the board on Xylem, with no major investment bank taking a position on the stock negative or positive.

“We maintain our hold opinion, based on our view that water infrastructure demand will strengthen further, while XYL expands via acquisitions, new product development, and investments in global dewatering and analytical instrumentation,” Standard and Poor’s analysts wrote in late April.

Xylem next reports on May 3.

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