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Zacks Investment Research downgraded Middlesex Water Company (MSEX - Snapshot Report) to a Zacks Rank #5 (Strong Sell) on March 15, 2013.

Why the Downgrade?

Middlesex Water reported its financial results for the fourth quarter and year 2012 on March 7, 2013. The company’s earnings per share came in at 17 cents, up from 12 cents reported in the year-ago but down 5.6% from the Zacks Consensus Estimate of 18 cents.

Revenue grew by 16.2% year over year to $27.1 million in the fourth quarter. The top-line improvement to a large extent was negated by an 11.7% increase in operating expenses. Of these, operating and maintenance expense grew by 13.3% while depreciation and other taxes soared by 6.2% and 8.8%, respectively. Lower overall other income and higher interest charges also impacted net results negatively.

Despite year-over-year improvements, a lack of momentum in the quarter resulted in a downward revision of earnings estimates for Middlesex Water. In the last 30 days, the Zacks Consensus Estimate for 2013 went down by 9.3% to 97 cents per share while that for 2014 plummeted by 7.5% to 98 cents.

Also, two quarters of each negative and positive earnings surprise has resulted in an overall negative earnings surprise of 8.4% in the last trailing four quarters. Currently, for the first quarter 2013 of Middlesex Water, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of -5.9%.
Other Stocks to Consider

Middlesex Water provides water, wastewater and related services in New Jersey, Delaware, and Pennsylvania. It currently has a market capitalization of $309 million. The company’s prime competitor Artesian Resources Corp (ARTNA - Snapshot Report) posted earnings of 20 cents per share in its fourth quarter 2012, roughly 4.8% below the Zacks Consensus estimate of 21 cents.    

Other stocks to watch out for in the industry are Aqua America Inc. (WTR - Snapshot Report), with a Zacks Rank #1 (Strong Buy) and American States Water Company (AWR - Snapshot Report) with a Zacks Rank #2 (Buy).

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