Why Xylem is looking better

The water and wastewater company is searching for acquisitions and recently won a new contract in Brazil.

By Jim J. Jubak Sep 25, 2012 5:49PM

Waterdrops with dollar sign © daitoZen, Flickr, Getty Images

I added Xylem (XYL) to my Jubak's Picks portfolio on Sept. 4 with a target price of $30 a share by September 2013. Time for a quick update on some post-pick news. (I added Xylem after my Sept. 4 post on water; for more on the sector see that post here.)

First, on Sept. 6, Xylem affirmed its prior targets for fiscal 2012. The company projected revenue for $3.8 billion (against the Wall Street consensus of $3.8 billion) and year-over-year earnings per share growth of 4% to 10%.

Second, on Sept.19, Xylem announced that it was doubling its target for acquisitions this year to $300 million to $500 million. That fits with the trajectory of the consolidating water treatment sector and with the company's comments that it sees acquisitions adding one to two percentage points of growth in the long term.

And, third, on Sept. 25, Xylem reported that it had been awarded a contract to supply systems for a new wastewater treatment plant in Campo Grande in Brazil. This is important confirmation of Xylem’s ability to reach its goal of growing emerging markets to better than 20% of company revenue.

On these three items, I'm going to nudge my target price for Xylem to $31 a share by September 2013.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of Xylem as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.

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1Comment

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Sep 26, 2012 9:10AM

Jim

Nice news. So... who do you figure Xylem will acquire?

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