Xylem Inc. (XYL): A Bull Case Theory

We came across a bullish thesis on Xylem Inc. on Stay Invested’s Substack by Denis Gorbunov. In this article, we will summarize the bulls’ thesis on XYL. Xylem Inc.'s share was trading at $140.67 as of November 28th. XYL’s trailing and forward P/E were 36.26 and 25.45 respectively according to Yahoo Finance.

Xylem (XYL), a pure-play water technology company spun off from ITT, operates across the full water cycle with solutions that move, treat, analyze, monitor, and recycle water for public utilities, industrial users, commercial clients, and residential markets. Its business spans four core segments, each addressing distinct but interconnected needs in global water infrastructure: Water Solutions and Services, Applied Water, Water Infrastructure, and Measurement and Control Solutions. The company’s nationwide service network and strong presence in the U.S. and Europe support recurring revenues, long-term client relationships, and a high degree of operational resilience.

Xylem’s 2023 acquisition of Evoqua for $7.5 billion transformed the company into a full-stack water solutions provider, combining pumps, transport systems, metering, monitoring, and advanced treatment technologies under one platform. Structural tailwinds—such as rising water scarcity, stricter contaminant regulations, and demand for data-center cooling—further enhance Xylem’s growth potential. The company is well positioned to benefit from emerging contaminant removal technologies, smart water management, and digital transformations, supported by recent long-term contracts in Italy and Florida.

Financially sound with modest leverage, nearly $1 billion in free cash flow, and disciplined dilution, Xylem continues to deliver steady revenue and earnings growth despite minority interest from the Evoqua deal, which has minimal impact on shareholder value. Key risks such as tariffs, raw material constraints, and global spending slowdowns appear manageable, given Xylem’s track record of navigating downturns while expanding profitability. With essential offerings, durable demand drivers, and a growing role in critical infrastructure, Xylem stands out as a stable, long-term compounder suited for the conservative segment of an investment portfolio.

Previously we covered a bullish thesis on Graco Inc. (GGG) by Stock Analysis Compilation in December 2024, which highlighted its premium fluid handling products, strong pricing power, and stable demand for parts and accessories. The stock has depreciated approximately 2.67% since coverage due to broader economic weakness. The thesis still stands, while Denis Gorbunov shares a similar view but emphasizes Xylem’s full-stack water solutions and recurring infrastructure revenues.

Xylem Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held XYL at the end of the second quarter which was 39 in the previous quarter. While we acknowledge the potential of XYL as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.