2024-06-21 08:00:00 ET
Summary
- Xylem Inc.'s acquisition of Equovec in 2023 has led to significant revenue growth, increased EBITDA margin, and enhanced total earnings power.
- The stock is currently trading at high multiples, leaving little room for further multiple expansion, prompting a focus on earnings and returns on capital.
- While the acquisition has unlocked value for shareholders, the stretched valuation leaves little wiggle room and reduces the price/value gap in my view.
Investment Summary
The acquisition of Equovec by Xylem Inc. ( XYL ) in 2023 has unlocked substantial value for XYL's shareholders in my opinion. The new, larger company has 1) substantially grown its revenue base [43% in Q1 FY 2024], 2) realized ~290 basis points incremental EBITDA margin, and 3) increased total earnings power. Investors have taken note of this, winding up the company’s market value to its highest levels since 2021 (Figure 1)....
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For further details see:
Xylem: Wait For Multiple Contraction For This Excellent Company