If you’re looking into long-term plays in the water resource space, global water tech company Xylem (Xylem Stock Quote, Chart, News NYSE:XYL) should be top on the list, according to portfolio manager Christine Poole.
New York-headquartered Xylem, which reported $5.25 billion in revenue last year and has over 16,000 employees worldwide, last week gave a sneak peak at its second quarter ended June 30 financials, due on July 30, with the company now forecasting a revenue drop significantly smaller than previously called for.
Where management had guided for revenue to drop by between 20 and 30 per cent, it now expects a decrease of 14 per cent with earnings expected to come in at between $0.37 and $0.39 per share on an adjusted basis. For its first quarter 2020, Xylem posted adjusted earnings of $0.23 per share.
Xylem at the same time announced two new deals, a $115-million contract in India, its largest yet in the country, and a $90-million contract in the UK. CEO and president Patrick Decker said Xylem is in a solid position to traverse the uncertainties surrounding COVID-19, which has put a damper on investment in water infrastructure across many industries.
“The large deals we are winning – both in developed and emerging markets – are proof that large-scale projects, and the implementation of transformational technologies, are continuing to move ahead and that Xylem is well positioned to benefit from that momentum over the longer term,” said Decker in a press release. “We look forward to reporting full results for the quarter in a few weeks’ time.”
Poole said Xylem is the place to be if you’re interested in playing the secular growth theme of water scarcity.
“We still own Xylem,” said Poole, CEO of GlobeInvest Capital Management, who spoke to BNN Bloomberg last Thursday. “It’s a pure water business. The company specializes in water treatment, transport and tests, and we actually think water as a general category is a scarce resource and so any company that plays into that and provides treatment is a long-term secular growth theme. And xylem is one of the few publicly traded peer companies in that sector.”
“They pre-announced on the upside [last week],” she said. “When they announced the first quarter, that was in the midst of COVID starting and obviously a lot of their business opportunities or proposals were at a standstill.”
Xylem, which comes with a dividend yield of 1.4 per cent, finished 2019 up 18 per cent and was starting 2020 off strongly before the big market pullback in late February and March. Since then the stock has had
trouble recouping its losses and is currently down six per cent for the year.
“They've seen a faster recovery than what they had anticipated in the first quarter, but they’re still going to be down year-over-year,” Poole said. “We continue to like it as a long-term investment in water as a secular growth theme, so I continue to hold it here.”