On Jan 15, Zacks Investment Research upgraded Aqua America Inc. ( WTR - Snapshot Report ) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The company has registered earnings surprises in the last two quarters with an average beat of 5.0%. The long-term expected earnings growth rate for this stock is 6.87% In addition, the acquisition driven growth strategy makes it even more likely for the company to deliver another earnings beat in the fourth quarter.

Aqua America has completed around 200 acquisitions in all and in 2012 alone it clinched 18 acquisitions. These tuck-in deals have expanded its operations and increased the customer base. The company seems indefatigable when it comes to acquisitions and has already completed three such deals at the start of 2013.

Besides acquisitions Aqua America’s continuous investment in development and maintenance of its infrastructure has improved the water quality and consistency of service. The company’s $300 million capex target for 2012 is a testament to the company’s commitment to upgrade its existing operations.

Consistent dividend payments for the past 66 years make the shares attractive. An annual dividend of 67 cents per share results in a dividend yield of 2.63%, higher than the industry average of 1.83%.

The Zacks Consensus Estimate for 2012 of $1.09 per share reflects year-over-year growth of 16.4%. For 2013, the Zacks Consensus Estimate of $2.71 per share reflects growth of 9.04% from the year-ago period.

Other Stocks to Consider

Other than Aqua America, a few other water utilities are also performing well and have a favorable Zacks Rank. Overall the consistent infrastructural upgrades and cost cutting initiatives of the utilities will continue to boost performance in the upcoming quarters. The stocks worth considering are Zacks Ranked #1 Connecticut Water Service Inc. ( CTWS - Snapshot Report ) and Zacks Ranked #2 American Water Works Company Inc. ( AWK - Snapshot Report ) .