01. Xylem Inc. (NYSE:XYL)
Number of Hedge Fund Holders: 50
Xylem Inc. (NYSE:XYL) is a major player in the water industry, providing innovative solutions for water infrastructure, smart metering, and water treatment. It is widely regarded as a water stock due to its focus on water-related technologies and services, which are essential in addressing global water challenges. As of Q2 2024, the stock was held by 50 hedge funds, up from 45 in the previous quarter, indicating increasing institutional confidence in its long-term growth potential.
In the second quarter of 2024, Xylem Inc. (NYSE:XYL) reported strong financial performance, surpassing analysts’ expectations. The company posted earnings per share (EPS) of $1.09, beating the consensus estimate of $1.05. This 11% year-over-year EPS growth highlights the company’s robust profitability and effective cost management. Total revenues rose by 26%, with organic revenue increasing by 9%, driven by strong demand in its Measurement & Control Solutions (MCS) and Water Infrastructure segments.
Xylem Inc. (NYSE:XYL) EBITDA margin for the quarter was 20.8%, up 170 basis points compared to the prior year. The company achieved a solid margin expansion thanks to increased volume, price realization, and productivity gains. The MCS segment, in particular, delivered an impressive performance, with revenue up 26% and EBITDA margins increasing by 700 basis points. This growth was fueled by higher demand for smart metering solutions and backlog execution, reflecting Xylem Inc. (NYSE:XYL) ability to capture market opportunities effectively.
Moreover, Xylem Inc. (NYSE:XYL) integration of Evoqua Water Technologies is progressing well, leading to cost synergies and enhanced commercial capabilities. The combination is expected to generate $100 million in cost synergies by the end of 2024, positioning the company for further margin expansion. Additionally, Xylem Inc. (NYSE:XYL) balance sheet remains strong, with a net debt-to-adjusted EBITDA ratio of 0.7x, and its year-to-date free cash flow increased by 200% compared to last year, reflecting improved cash flow generation. Given its solid financial position, strategic acquisitions, and a positive outlook for revenue and margin growth, Xylem Inc. (NYSE:XYL) is well-positioned to benefit from ongoing demand for water solutions. The company’s strong fundamentals make it an attractive investment for those looking to gain exposure to the water industry.
Artisan Mid Cap Fund stated the following regarding Xylem Inc. (NYSE:XYL) in its first quarter 2024 investor letter:
“Notable adds in the quarter included Xylem Inc. (NYSE:XYL), NVR and Equifax. Xylem is a global leader in water technology across pumps, smart meters and treatment services. More than 80% of the company’s sales come from markets where it maintains the No. 1 or No. 2 market position. Xylem’s pumps business (sold primarily to utilities) is sticky and profitable, providing capital to invest in innovative solutions, such as smart meters. In mid-2023, Xylem completed the acquisition of Evoqua, giving it a leading position in the US water treatment business. We believe the company is at the start of a compelling profit cycle. Smart meter sales are recovering from supply chain issues, cost and revenue synergies from its acquisition are in the early innings, and a newly hired and well-respected CFO should help catalyze long-awaited margin expansion. Meanwhile, rising demand for solutions to water sustainability challenges should be a trend for years to come. Financial results were thesis affirming, including revenue, margins and earnings that exceeded expectations. We decided to bring the position into the CropSM of the portfolio.”
While we acknowledge the potential of XYL to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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