Xylem's (NYSE:XYL) valuation has clearly benefited in the past from its strong leverage to ESG themes, with the company's leverage to water infrastructure leading it to score well on the environmental part (the "E") of ESG fund mandates. With that tailwind of investor enthusiasm for water stocks, Xylem has enjoyed a multiple typically reserved for companies with stronger "compounder" credentials like Danaher (DHR) or IDEX (IEX).
That valuation, not the company's qualities, has long been my prime issue with the stock, but after a one-third decline in the share price since my last update (far worse than declines in other compounds like IDEX or other water infrastructure names like Franklin Electric (FELE) or Mueller (MWA)), a revisit is warranted.
There are certainly things that I find less than ideal about Xylem, but I'm also a believer that almost every asset has its right price. What's more, for all of my skepticism and cynicism about what the Street was recently paying for water-related names, I do think that the water market has attractive long-term structural characteristics. Xylem isn't a slam-dunk just on valuation now, but it's a great deal more interesting than before.
Read the full article here:
No comments:
Post a Comment