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Green & Gold FundRecommendation: HOLD Xylem, Inc.
• Purchased 300 shares on February 23, 2012 @ 27.56 per share. ($8,268)
• Currently @ 27.98 per share. ($8,394)• $126 gain
Xylem Position in Fund
High @ 28.73 on March 15
Low @ 23.16 on July 16
Water Industry Overview
Global Water Sector Growth Drivers
Population Growth
Supply Shrinking due to Pollution
Industrial Expansion Urbanization
Infrastructure Replacement/Upgrade
$425 Billion
4% to 6% defensive long-term growth
Movement towards Global Water Oligopoly
Technology
• Spun off from ITT in 2011• Xylem (XYL) is a leading global water technology
provider.• Transport• Treat• Test• Public Utility• Industrial• Agricultural
• Operates in 150 countries• 12,500 employees worldwide
Xylem Company Profile
37%
36%
11%
16%
Geographic Mix
Europe
US
AsiaPacific
Other
45%
11%6%
19%
16%
3%
Segments (% of Revenue)
Transport
Treatment
Test
BuildingServices
IndustrialWater
Irrigation
Xylem Inc.
How does Xylem contribute to solving the water crisis?
Challenges: XYL Solution:
Growing scarcity and populations.
Reuse and Recycle water.
Using less energy to transport water.
Modernize the water system.
Develop more water treatment systems.
Making water from multiple sources safe to drink.
Financial Highlights
(in millions) 2009 2010 2011 2012E 2013E
Revenue 2,849 3,202 3,803 3,806 3,911
Net Income 202 286 358 303 366
Free Cash Flow 308 301 388 276 345
• XYL has continued to increase revenue over the past few years through strategic acquisitions, even with slower revenue growth in Europe.
• Strong free cash flow opens the door for future acquisitions or an increase in the dividend payout.
XYL PNR FLS WTR AVG
Market Cap 5.80 B 12.26B 8.34B 5.37B 7.94B
Forward PE 14.01 15.72 14.61 22.00 16.585
FCF (2013E) 344.70 335.9 621.39 -5.01 324.25M
FCF (2012E) 276.10 249.59 475.96 -20.81 245.21
Debt to Equity 0.59 0.28 .46 1.26 0.65
Div Yield (2013E) 1.60% 1.82% 0.99% 2.71% 1.78%
Comparables Analysis
• XYL & PNR are strong compared to peer group.
XYL Investment Information
• XYL stock has been fairly stationary since we bought the stock and is currently $0.42 above where we bought it. Why?
• Revenue did not increase at the expected rate in developed markets, especially Europe.
• Losses in foreign exchange conversions. • However, acquisitions, which did better than
planned, are expected to continue throughout 2013.
Xylem highlights from February 2012 to January 2013
Strengths Broad PortfolioWater is >90% of total revenuesPartnerships- GE, Zenon, Toro, MonoEstablished Brand Names (38)BBB Rating
WeaknessesLack of Available InformationAbility to hedge foreign currency transaction risks
OpportunitiesAcquisitionsGrowth into Emerging Markets MergersAging Water Infrastructure
ThreatsDecelerated growth of global economiesIncreased costs of raw materialsRegulatory Compliance
SWOT Analysis
• In order to maintain exposure in the growing water sector, we should hold Xylem Inc. due to their use of technology and more than 90% of their revenues coming from water. The global recession has prevented the takeoff we originally expected. However, as economies recover and more nations require infrastructure upgrades, we expect XYL’s stock price to increase.
Investment Thesis
• Sector : Industrials and Materials• Industry Group: Water • Current Holdings: XLI, XME, GE, UPS, SAND, XYL• Target Sector Allocation: 8.23%, $44,491• Current Sector Allocation: 10.98%, $59,357• Remaining Allocation: (2.75)%, $(14,866)
• HOLD 300 shares of XYL. ($8,388, 1.49% of portfolio, 13.59% of sector)
• year end target price: $32.00
Portfolio Placement
One Year Stock Chart
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