Resurgence of Infrastructure Enthusiasm Justified

Yesterday, this company reported record fourth quarter revenue that was well above Wall Street projections, writes MoneyShow's Jim Jubak, who feels the company's recent pop indicates that industry enthusiasm has returned.

Xylem (BATS:XYL) moved up yesterday, after the company reported record revenue for the fourth quarter of $1.03 billion, almost 5% higher than Wall Street projections. Revenue climbed 7% year over year and earnings per share hit 56 cents a share, well above the 52 cents a share projected by the Wall Street consensus. The company also announced an increase in its quarterly dividend to 12.8 cents from a current 11.6 cents. Xylem also raised its guidance for fiscal 2014, to earnings of $1.85 to $2.00 a share, versus the Wall Street consensus of $1.91. The company said revenue for fiscal 2014 would be $4 billion against the $3.94 billion Wall Street consensus.

I think it tells you something about how few companies have put this kind of complete package—earnings and revenue beats, a dividend increase, and positive guidance for 2014—together that the market moved Xylem's shares up 10.6% by the New York close.

A 10.6% pop on a 4 cents a share beat seems, well, very enthusiastic.

But it might actually be justified, because Xylem is seeing an improvement in its European markets. The big reason not to buy the stock in 2012 and 2013 was the slow growth in government spending in the EuroZone on water infrastructure. Strange how a little debt crisis can cut into spending, even spending on water.

Yesterday, however, the company told Wall Street that it was encouraged by signs of stabilization in some of its key end markets such as industrial and public utilities, as well as relative strength in Europe. We believe, Xylem continued, that the improvement it saw in the last half of 2013 will carry over into 2014.

Some concrete contract wins in January backed up that talk. For example, Xylem announced a deal to supply its supply of technology to disinfect wastewater, to a plant in the Vigo region of Spain that will be the largest ultraviolet treatment plant in the country, when it is finished.

Xylem is a member of my Jubak's Picks portfolio. The shares are up 50.6% since I added them to the portfolio on September 4, 2012. As of February 4, I'm raising the target price to $45 a share by November 2014, from the current $43.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Xylem as of the end of December. For a full list of the stocks in the fund, see the fund's portfolio here.