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4 Water Utility Stocks to Watch Amid Industry's Near-Term Woes
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Continued uninterrupted supply of clean potable water and reliable sewer services are essential for healthy and hygienic living. Water utilities across the United States are silently doing this important task day in and day out to meet the increasing demand of millions of Americans.
The aging of pipelines is a concern, but water utilities continue with their upgrade and maintenance projects to minimize disruption in operations. American Water Works Company (AWK - Free Report) , with its widespread operations, systematic capital expenditure, and organic and inorganic initiatives to further expand operations, offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in one’s portfolio include Essential Utilities (WTRG - Free Report) , California Water Service Group (CWT - Free Report) and Artesian Resources (ARTNA - Free Report) .
About the Industry
The Zacks Utility - Water Supply industry includes companies involved in providing drinking water and wastewater services to industrial, commercial, residential customer classes and to numerous military bases across the country. Water utility operators own more than two million miles of pipelines that are getting old. Utilities continuously replace old pipelines and add new ones to expand operations. Utility operators own storage tanks, treatment plants and desalination plants to supply uninterrupted potable water across customer classes. Despite the ample presence of water across the globe, less than 1% of the total water volume is fit for human use. Given the scenario, the water utilities, apart from ensuring proper infrastructure to supply water, utilize technology to treat saline water and make it fit for consumption.
3 Trends Pivotal for Shaping the Water Supply Industry's Future
Aging Infrastructure Needs Huge Investments: The water and wastewater infrastructure is aging and is gradually nearing the end of its effective service life. Per the findings of the American Society of Civil Engineers (“ASCE”), water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. The ASCE has provided a C- grade to overall U.S. water and wastewater infrastructure. Per U.S. Environmental Protection Agency (“EPA”), an estimated $744 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades. Government funding and investments from the water utilities operating in the United States are being used for upgrading the infrastructure.
Consolidation in Fragmented Water Utility Space: Since the U.S. water utility industry is very fragmented, upgrading the aging assets to provide quality services is the need of the hour. Per EPA, at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in essential pipeline repairs and maintenance, 2.1 trillion gallons of treated water is lost every year in the United States. This highly fragmented industry creates operational challenges in meeting the requirement for replacement, and adding to aging water and wastewater infrastructure. Acquisitions of small water utilities by bigger companies ensure the extension of high-quality services to customers and investment required for the upgrade of old acquired assets. Water conservation and initiatives taken by large water operators in educating their consumers on efficient usage and appliances to detect leakage will help to prevent wastage.
Efficient Usage is Saving Precious Water: An interesting trend being observed in the water industry is a reduction in per capita water usage. The reasons behind the drop are the usage of water-efficient techniques, raising awareness among customers by the water utilities, use of advanced water-efficient appliances and actions taken to fix leaks in the pipelines. Lower usage per person allows the water utilities to meet the need of an expanding customer base without increasing capacity to a great extent. In a way, this keeps the water rates unchanged for a longer period for consumers and assists the water utility operators to increase their earnings by serving a larger population with the same water supply capacity.
Zacks Industry Rank Indicates Weak Near-Term Prospects
This Zacks Utility Water Supply industry is a 11-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #207, which places it in the bottom 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are not optimistic about this group’s earnings growth potential. The Water Utility industry’s 2021 earnings estimates have decreased nearly 1.5% since December 2020 to $2.05.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Utility Water Supply industry has outperformed its own sector but lagged the Zacks S&P 500 composite over the past 12 months. The industry has gained 17.1% compared with its sector’s rally of 8.3% in the past 12 months. The S&P 500 has risen 28.5% in the said time frame.
One Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing water utility stocks, the industry is currently trading at 20.91X compared with the S&P 500’s 16.19X. It is trading above the sector’s trailing 12-month EV/EBITDA of 16.13X.
Over the past five years, the industry has traded as high as 20.91X, as low as 9.92X and at the median of 12.05X.
Water Supply Industry vs S&P 500 ( Past 5 yrs)
Water Supply Industry vs Utility Sector ( Past 5 yrs)
4 Water Utility Industry Stocks to Keep a Tab On
California Water Service Group: San Jose, CA-based California Water Service provides water and wastewater services in a few states. Recently, the company completed the Palos Verdes Peninsula Water Reliability Project that will support the existing 60-year-old drinking water pipeline and provide assistance to the system during natural disasters. CWT aims to invest in the range of $270- $300 million in 2021 to strengthen its infrastructure. Also, the midpoint of its capital expenditure planned for 2022, 2023 and 2024 is $355 million, $360 million and $365 million, respectively, which will assist California Water Service to meet the increasing needs to replace and maintain infrastructure.
Over the past 60 days, the Zacks Consensus Estimate for 2021 and 2022 earnings has moved up by 7.6% and 3.2%, respectively. The stock has gained 32% over the past 12 months. California Water Service currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CWT
Artesian Resources: Newark, DE- based Artesian Resources, through its subsidiaries, provides water and wastewater services in a few states. ARTNA makes systematic capital expenditures to enhance and expand its water and wastewater infrastructure systems and to continue its ongoing efforts to ensure high-quality, reliable service to customers. ARTNA entered into an agreement to acquire Tidewater Environmental Services to further enhance its operation in Delaware.
The Zacks Consensus Estimate for Artesian Resources’ 2021 earnings and revenues suggests a year-over-year rise of 1.1% and 8.3%, respectively. The Zacks Consensus Estimate for Artesian Resources’ 2022 earnings and revenues suggests a year-over-year rise of 2.1% and 3.3%, respectively. The stock has gained 26.4% over the past 12 months. Artesian Resources currently has a Zacks Rank #2.
Price and Consensus: ARTNA
American Water Works Company: Camden, NJ-based American Water along with its subsidiaries provides water and wastewater services to millions of Americans. The company continues to expand operations through acquisitions and organic means. American Water Works has plans to invest $13-$14 billion in the 2022-2026 time period and $28-$32 billion in 2022-2031. AWK is also very active in making acquisitions and benefits by expanding operations in the United States through the inorganic route.
The Zacks Consensus Estimate for American Water’s 2021 earnings and revenues suggests a year-over-year rise of 9% and 4.2%, respectively. The Zacks Consensus Estimate for American Water’s 2022 earnings and revenues suggests a year-over-year rise of 5.3% and 0.2%, respectively. The stock has gained 24.5% over the past 12 months. American Water currently has a Zacks Rank #3 (Hold).
Price and Consensus: AWK
Essential Utilities, Inc: Bryn Mawr, PA-based Essential Utilities, along with its subsidiaries, provides water, wastewater and natural gas services to its customers. WTRG has a well-spread water infrastructure to deliver quality services to its expanding customer base. Essential Utilities has diversified operations through the acquisition of Peoples Gas, a natural gas distribution utility. WTRG’s long-term plan is to invest $3 billion through 2023 to rehabilitate and strengthen water and natural gas pipeline systems.
The Zacks Consensus Estimate for Essential Utilities’ 2021 earnings and revenues suggests a year-over-year rise of 5.7% and 25.8%, respectively. The Zacks Consensus Estimate for Essential Utilities’ 2022 earnings and revenues suggests a year-over-year rise of 7.2% and 4.4%, respectively. The stock has gained 14.8% over the past 12 months. Essential Utilities currently has a Zacks Rank #3.
Price and Consensus: WTRG
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4 Water Utility Stocks to Watch Amid Industry's Near-Term Woes
Continued uninterrupted supply of clean potable water and reliable sewer services are essential for healthy and hygienic living. Water utilities across the United States are silently doing this important task day in and day out to meet the increasing demand of millions of Americans.
The aging of pipelines is a concern, but water utilities continue with their upgrade and maintenance projects to minimize disruption in operations. American Water Works Company (AWK - Free Report) , with its widespread operations, systematic capital expenditure, and organic and inorganic initiatives to further expand operations, offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in one’s portfolio include Essential Utilities (WTRG - Free Report) , California Water Service Group (CWT - Free Report) and Artesian Resources (ARTNA - Free Report) .
About the Industry
The Zacks Utility - Water Supply industry includes companies involved in providing drinking water and wastewater services to industrial, commercial, residential customer classes and to numerous military bases across the country. Water utility operators own more than two million miles of pipelines that are getting old. Utilities continuously replace old pipelines and add new ones to expand operations. Utility operators own storage tanks, treatment plants and desalination plants to supply uninterrupted potable water across customer classes. Despite the ample presence of water across the globe, less than 1% of the total water volume is fit for human use. Given the scenario, the water utilities, apart from ensuring proper infrastructure to supply water, utilize technology to treat saline water and make it fit for consumption.
3 Trends Pivotal for Shaping the Water Supply Industry's Future
Aging Infrastructure Needs Huge Investments: The water and wastewater infrastructure is aging and is gradually nearing the end of its effective service life. Per the findings of the American Society of Civil Engineers (“ASCE”), water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. The ASCE has provided a C- grade to overall U.S. water and wastewater infrastructure. Per U.S. Environmental Protection Agency (“EPA”), an estimated $744 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades. Government funding and investments from the water utilities operating in the United States are being used for upgrading the infrastructure.
Consolidation in Fragmented Water Utility Space: Since the U.S. water utility industry is very fragmented, upgrading the aging assets to provide quality services is the need of the hour. Per EPA, at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in essential pipeline repairs and maintenance, 2.1 trillion gallons of treated water is lost every year in the United States. This highly fragmented industry creates operational challenges in meeting the requirement for replacement, and adding to aging water and wastewater infrastructure. Acquisitions of small water utilities by bigger companies ensure the extension of high-quality services to customers and investment required for the upgrade of old acquired assets. Water conservation and initiatives taken by large water operators in educating their consumers on efficient usage and appliances to detect leakage will help to prevent wastage.
Efficient Usage is Saving Precious Water: An interesting trend being observed in the water industry is a reduction in per capita water usage. The reasons behind the drop are the usage of water-efficient techniques, raising awareness among customers by the water utilities, use of advanced water-efficient appliances and actions taken to fix leaks in the pipelines. Lower usage per person allows the water utilities to meet the need of an expanding customer base without increasing capacity to a great extent. In a way, this keeps the water rates unchanged for a longer period for consumers and assists the water utility operators to increase their earnings by serving a larger population with the same water supply capacity.
Zacks Industry Rank Indicates Weak Near-Term Prospects
This Zacks Utility Water Supply industry is a 11-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #207, which places it in the bottom 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are not optimistic about this group’s earnings growth potential. The Water Utility industry’s 2021 earnings estimates have decreased nearly 1.5% since December 2020 to $2.05.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Utility Water Supply industry has outperformed its own sector but lagged the Zacks S&P 500 composite over the past 12 months. The industry has gained 17.1% compared with its sector’s rally of 8.3% in the past 12 months. The S&P 500 has risen 28.5% in the said time frame.
One Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing water utility stocks, the industry is currently trading at 20.91X compared with the S&P 500’s 16.19X. It is trading above the sector’s trailing 12-month EV/EBITDA of 16.13X.
Over the past five years, the industry has traded as high as 20.91X, as low as 9.92X and at the median of 12.05X.
Water Supply Industry vs S&P 500 ( Past 5 yrs)
Water Supply Industry vs Utility Sector ( Past 5 yrs)
4 Water Utility Industry Stocks to Keep a Tab On
California Water Service Group: San Jose, CA-based California Water Service provides water and wastewater services in a few states. Recently, the company completed the Palos Verdes Peninsula Water Reliability Project that will support the existing 60-year-old drinking water pipeline and provide assistance to the system during natural disasters. CWT aims to invest in the range of $270- $300 million in 2021 to strengthen its infrastructure. Also, the midpoint of its capital expenditure planned for 2022, 2023 and 2024 is $355 million, $360 million and $365 million, respectively, which will assist California Water Service to meet the increasing needs to replace and maintain infrastructure.
Over the past 60 days, the Zacks Consensus Estimate for 2021 and 2022 earnings has moved up by 7.6% and 3.2%, respectively. The stock has gained 32% over the past 12 months. California Water Service currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CWT
Artesian Resources: Newark, DE- based Artesian Resources, through its subsidiaries, provides water and wastewater services in a few states. ARTNA makes systematic capital expenditures to enhance and expand its water and wastewater infrastructure systems and to continue its ongoing efforts to ensure high-quality, reliable service to customers. ARTNA entered into an agreement to acquire Tidewater Environmental Services to further enhance its operation in Delaware.
The Zacks Consensus Estimate for Artesian Resources’ 2021 earnings and revenues suggests a year-over-year rise of 1.1% and 8.3%, respectively. The Zacks Consensus Estimate for Artesian Resources’ 2022 earnings and revenues suggests a year-over-year rise of 2.1% and 3.3%, respectively. The stock has gained 26.4% over the past 12 months. Artesian Resources currently has a Zacks Rank #2.
Price and Consensus: ARTNA
American Water Works Company: Camden, NJ-based American Water along with its subsidiaries provides water and wastewater services to millions of Americans. The company continues to expand operations through acquisitions and organic means. American Water Works has plans to invest $13-$14 billion in the 2022-2026 time period and $28-$32 billion in 2022-2031. AWK is also very active in making acquisitions and benefits by expanding operations in the United States through the inorganic route.
The Zacks Consensus Estimate for American Water’s 2021 earnings and revenues suggests a year-over-year rise of 9% and 4.2%, respectively. The Zacks Consensus Estimate for American Water’s 2022 earnings and revenues suggests a year-over-year rise of 5.3% and 0.2%, respectively. The stock has gained 24.5% over the past 12 months. American Water currently has a Zacks Rank #3 (Hold).
Price and Consensus: AWK
Essential Utilities, Inc: Bryn Mawr, PA-based Essential Utilities, along with its subsidiaries, provides water, wastewater and natural gas services to its customers. WTRG has a well-spread water infrastructure to deliver quality services to its expanding customer base. Essential Utilities has diversified operations through the acquisition of Peoples Gas, a natural gas distribution utility. WTRG’s long-term plan is to invest $3 billion through 2023 to rehabilitate and strengthen water and natural gas pipeline systems.
The Zacks Consensus Estimate for Essential Utilities’ 2021 earnings and revenues suggests a year-over-year rise of 5.7% and 25.8%, respectively. The Zacks Consensus Estimate for Essential Utilities’ 2022 earnings and revenues suggests a year-over-year rise of 7.2% and 4.4%, respectively. The stock has gained 14.8% over the past 12 months. Essential Utilities currently has a Zacks Rank #3.
Price and Consensus: WTRG