Xylem: Reiterating Narrow Moat Rating and $97 Fair Value Estimate After Evoqua Acquisition
Summary
We think Xylem has carved a narrow moat based primarily on customer switching costs and secondarily on intangible assets. Xylem’s large installed base of equipment generates recurring revenue driven by aftermarket service and replacement parts as well as long-term contracts (up to 15-20 years) in the measurement and control solutions segment. Xylem’s moat is bolstered by intangible assets, including an extensive patent portfolio, reputable brands, and strong dealer relationships. Likewise, we believe that Evoqua has established a narrow moat based on customer switching costs and intangible assets. We believe that a key element of Evoqua’s moat is its unparalleled network of service professionals, which allows the firm to reach customers within two hours in the United States.