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On August 1 Xylem (XYL) reported second quarter earnings of 59 cents a share (excluding one-time items), beating Wall Street earnings estimates by 2 cents a share. Thanks to recent acquisitions revenue of $1.16 billion climbed 24.9% year over year, slightly missing the analyst consensus of $1.17 billion.
And the company raised guidance for 2017 to earnings of $2.30 to $2.40 a share (from the previous guidance of $2.23 to $2.38 per share and the Wall Street estimate of $2.31 a share.) Xylem raised guidance for revenue to $4.65 billion to $4.70 billion from the previous $4.50 to $4.60 billion. Wall Street was projecting $4.60 billion in revenue.
Very importantly organic revenue–that is revenue without the effect of recent acquisitions–will grow by 3% to 4%. Some of that is a result of a weak dollar pushing up reported revenue, but even on a steady dollar basis, the company projects organic revenue growth of 2% to 3%. Orders in the second quarter showed organic growth of 8%.
Now these growth rates are nothing to rave about, but they are signs that the company is successfully managing its way through tough times in its end water markets as public sector customers react to tight budgets with cautious orders. Xylem says that it sees its end markets improving and it spoke in its conference call about expanding margins. That combination would result in faster growth in 2018 than in the current year–if those trends materialize.
Xylem is a member of my Jubak Picks portfolio. The shares are up 137.29% since I added them to that portfolio on September 4, 2012. The shares have been in a steady uptrend since February and are now ahead 20.27% for 2017 through the August 3 close. The shares pay a 1.2% dividend.

As of August 3, I’m raising my target price to $63 a share.