Green & Gold Fund
Recommendation: HOLD Xylem, Inc.
Xylem Position in Fund
• Purchased 300 shares on February 23, 2012 @
27.56 per share. ($8,268)
• Currently @ 27.98 per share. ($8,394)
• $126 gain
High @ 28.73 on
March 15
Low @
23.16 on
July 16
Water Industry Overview
Global Water Sector
Growth Drivers
 $425 Billion
 Population Growth
4% to 6% defensive long-term
growth
 Supply Shrinking due to Pollution
Movement towards Global
Water Oligopoly
 Industrial Expansion
 Urbanization
 Infrastructure
Replacement/Upgrade
Technology
Xylem Company Profile
• Spun off from ITT in 2011
• Xylem (XYL) is a leading global water technology
provider.
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Transport
Treat
Test
Public Utility
Industrial
Agricultural
• Operates in 150 countries
• 12,500 employees worldwide
Xylem Inc.
Segments (% of Revenue)
Geographic Mix
Transport
3%
Europe
16%
37%
11%
36%
US
Treatment
16%
Test
45%
Asia
Pacific
Other
Building
Services
19%
6%
11%
Industrial
Water
Irrigation
How does Xylem contribute to solving the water
crisis?
Challenges:
XYL Solution:
Making water from multiple
sources safe to drink.
Develop more water
treatment systems.
Growing scarcity and
populations.
Reuse and Recycle water.
Using less energy to transport
water.
Modernize the water
system.
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.
Comparables Analysis
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%
• XYL & PNR are strong compared to peer group.
XYL Investment Information
Xylem highlights from February 2012 to January
2013
• 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.
SWOT Analysis
Strengths
 Broad Portfolio
Water is >90% of total revenues
Partnerships- GE, Zenon, Toro, Mono
Established Brand Names (38)
BBB Rating
Weaknesses
Lack of Available Information
Ability to hedge foreign currency
transaction risks
Opportunities
Acquisitions
Growth into Emerging Markets
Mergers
Aging Water Infrastructure
Threats
Decelerated growth of global
economies
Increased costs of raw materials
Regulatory Compliance
Investment Thesis
• 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.
Portfolio Placement
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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
One Year Stock Chart