Graco (NYSE: GGG) and Xylem (NYSE:XYL) are both mid-cap industrial products companies, but which is the better investment? We will compare the two companies based on the strength of their earnings, valuation, institutional ownership, risk, profitabiliy, analyst recommendations and dividends.

Dividends

Graco pays an annual dividend of $1.44 per share and has a dividend yield of 1.2%. Xylem pays an annual dividend of $0.72 per share and has a dividend yield of 1.2%. Graco pays out 92.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Xylem pays out 45.3% of its earnings in the form of a dividend. Graco has increased its dividend for 12 consecutive years and Xylem has increased its dividend for 4 consecutive years. Graco is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings & Valuation

This table compares Graco and Xylem’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Graco $1.40 billion 4.63 $397.35 million $1.55 74.76
Xylem $4.23 billion 2.54 $723.00 million $1.59 37.64

Xylem has higher revenue and earnings than Graco. Xylem is trading at a lower price-to-earnings ratio than Graco, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

90.3% of Graco shares are owned by institutional investors. Comparatively, 86.4% of Xylem shares are owned by institutional investors. 5.7% of Graco shares are owned by insiders. Comparatively, 0.8% of Xylem shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Analyst Recommendations

This is a summary of current ratings and target prices for Graco and Xylem, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Graco 0 4 0 0 2.00
Xylem 0 4 10 0 2.71

Graco presently has a consensus target price of $101.00, suggesting a potential downside of 12.84%. Xylem has a consensus target price of $57.92, suggesting a potential downside of 3.21%. Given Xylem’s stronger consensus rating and higher possible upside, analysts clearly believe Xylem is more favorable than Graco.

Risk & Volatility

Graco has a beta of 1.25, meaning that its share price is 25% more volatile than the S&P 500. Comparatively, Xylem has a beta of 1.18, meaning that its share price is 18% more volatile than the S&P 500.

Profitability

This table compares Graco and Xylem’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Graco 6.50% 40.21% 18.93%
Xylem 7.08% 16.02% 5.94%

Summary

Graco beats Xylem on 9 of the 17 factors compared between the two stocks.

About Graco

Graco Inc. designs, manufactures and markets systems and equipment used to move, measure, control, dispense and spray fluid and powder materials. The Company specializes in equipment for applications that involve materials with viscosities, materials with abrasive or corrosive properties, and multiple-component materials that require ratio control. The Company operates through three segments: Industrial, Process and Contractor. The Industrial segment markets equipment and pre-engineered packages for moving and applying paints, coatings, sealants, adhesives and other fluids. The Process segment markets pumps, valves, meters and accessories to move and dispense chemicals, oil and natural gas, water, wastewater, petroleum, food, lubricants and other fluids. The Contractor segment markets sprayers for architectural coatings for painting, corrosion control, texture and line striping. Its equipment is used in the manufacturing, processing, construction and maintenance industries.

About Xylem

Xylem Inc. is a water technology company. The Company designs, manufactures and services engineered solutions across a range of critical applications. It is an equipment and service provider for water and wastewater applications with a portfolio of products and services addressing the cycle of water, from collection, distribution and use to the return of water to the environment. It has three business segments, which include Water Infrastructure, Applied Water and Sensus. Water Infrastructure focuses on the transportation, treatment and testing of water, offering a range of products, including water and wastewater pumps, and controls and systems. Applied Water serves the uses of water and focuses on the residential, commercial, industrial and agricultural markets. The Sensus segment’s products include metering, networked communications, measurement and control technologies, software and services, including cloud-based analytics, remote monitoring and data management.

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