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4 Stocks to Buy Now From the Prospering Water Supply Industry
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Water utilities work day in and day out to ensure an uninterrupted supply of clean potable water and reliable sewer services to millions of customers in the United States. These are essential for healthy and hygienic living.
The aging of pipelines is concerning but water utilities continue with their upgrade and maintenance projects to minimize disruptions in operations. American Water Works Company (AWK - Free Report) , with its widespread operations, provides services to domestic customers and military bases and offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in one’s portfolio are Essential Utilities (WTRG - Free Report) , Middlesex Water Company (MSEX - Free Report) and Consolidated Water Co. Ltd. (CWCO - Free Report) .
About the Industry
The Zacks Utility - Water Supply industry includes companies providing drinking water and wastewater services to industrial, commercial, residential customers and military bases. Water utility operators own nearly 2.2 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 to customers. The highly fragmented industry creates operational challenges but increasing efficient water use by individuals and other industries will ensure that previous water is not wasted. A large nation like the United States already has a widespread water infrastructure in place but proper maintenance and upgrade of aging infrastructure becomes crucial for the supply of potable water to millions of consumers.
3 Trends Pivotal for Shaping the Water Supply Industry's Future
Fragmented Water Industry Needs Consolidation: Since the U.S. water utility industry is highly fragmented, upgrading aging assets to provide quality services is the need of the hour. Per the American Society of Civil Engineers (ASCE), at present, 50,000 community water systems and 16,000 wastewater treatment systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States. The industry creates operational challenges in meeting the requirement for replacement and adding to the aging water and wastewater infrastructure. Large water utility companies continue to acquire small players to ensure the extension of high-quality services to customers and the investment required to upgrade old and acquired assets. Water conservation and initiatives taken by large water operators in educating their consumers on the efficient use of appliances and detecting leakage should help to prevent wastage.
Aging Infrastructure Needs Huge Investments: The water and wastewater infrastructure is aging and gradually nearing the end of its effective service life. Per the findings of the ASCE, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. It is evident that this industry needs more investment for maintenance and upgrade. Per the 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 Bipartisan Infrastructure Law provided $50 billion to EPA to strengthen the drinking water and wastewater systems of the United States. A major portion of the investment will be directed to upgrading water infrastructure serving disadvantaged communities.
Efficient Use Will Save Precious Water: Usage of water-efficient techniques, the use of advanced water-efficient appliances and timely actions taken to fix pipeline leaks will save precious water. If we use water more efficiently, it will not only lower wastage but reduce monthly utility bills. New methods used to cool turbines of power plants and efficiency in water usage in irrigation for farming reduce water usage. Lower use per person allows water utilities to meet the needs of an expanding customer base without increasing capacity to a great extent. In a way, efficient usage and a reduction in wastage allow water utilities to keep their service rates unchanged for a longer period for consumers and assist water utility operators in increasing their earnings by serving a larger population with the same water supply capacity.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Utility Water Supply industry is a 12-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #37, which places it in the top 15% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects for the near term. 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s earnings estimates have been revised 0.9% upward by analysts for the current year since Jan 1, 2023.
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 Outperforms Sector, Lags S&P 500
The Zacks Utility Water Supply industry has outperformed its sector but lagged the Zacks S&P 500 composite over the past 12 months. The industry has lost 4.7%, narrower than the Utility sector’s decline of 15.2%, while the Zacks S&P 500 composite has gained 8.9% in the same 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 10.06X compared with the S&P 500’s 13.15X and the sector’s trailing 12-month EV/EBITDA of 18.9X.
Over the past five years, the industry has traded as high as 23.26X, as low as 9.96X and at the median of 14.15X.
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 Consider
Consolidated Water Co. Ltd: This Grand Cayman, Cayman Islands-based company, along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems. Consolidated Water operates 11 water production plants with a capacity of 25.5 million gallons per day in four countries. In the past three months, the stock has returned 13.1% against its industry’s decline of 39.3%. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up by 2.1%. The long-term (three to five years) earnings growth rate for the company is currently pegged at 8%. The current dividend yield of the company is 1.77%. Consolidated Water currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CWCO
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 plans to invest $2.9 billion in 2023 to strengthen and expand its existing infrastructure. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up by 0.2%. The long-term (three to five years) earnings growth of the company is currently pegged at 8.18%. The current dividend yield of the company is 1.99%. The company delivered an average surprise of 7.07% in the last four quarters. American Water currently has a Zacks Rank #2 (Buy).
Price and Consensus: AWK
Essential Utilities: The Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. WTRG’s long-term plan is to invest $3.3 billion through 2025 to rehabilitate and strengthen water and natural gas pipeline systems. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has been unchanged. The long-term earnings growth of the company is currently pegged at 5.6%. The current dividend yield of the company is 2.82%. Essential Utilities currently has a Zacks Rank #2.
Price and Consensus: WTRG
Middlesex Water Company: Iselin, NJ-based Middlesex Water, along with its subsidiaries, provides water and wastewater services to its customers. Middlesex Water has plans to invest $267 million during the 2023-2025 period to strengthen its water and wastewater infrastructure. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up by 0.5%. The stock has gained 10.4% in the past three months. The current dividend yield of the company is 1.56%. Middlesex Water currently has a Zacks Rank #2.
Price and Consensus: MSEX
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4 Stocks to Buy Now From the Prospering Water Supply Industry
Water utilities work day in and day out to ensure an uninterrupted supply of clean potable water and reliable sewer services to millions of customers in the United States. These are essential for healthy and hygienic living.
The aging of pipelines is concerning but water utilities continue with their upgrade and maintenance projects to minimize disruptions in operations. American Water Works Company (AWK - Free Report) , with its widespread operations, provides services to domestic customers and military bases and offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in one’s portfolio are Essential Utilities (WTRG - Free Report) , Middlesex Water Company (MSEX - Free Report) and Consolidated Water Co. Ltd. (CWCO - Free Report) .
About the Industry
The Zacks Utility - Water Supply industry includes companies providing drinking water and wastewater services to industrial, commercial, residential customers and military bases. Water utility operators own nearly 2.2 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 to customers. The highly fragmented industry creates operational challenges but increasing efficient water use by individuals and other industries will ensure that previous water is not wasted. A large nation like the United States already has a widespread water infrastructure in place but proper maintenance and upgrade of aging infrastructure becomes crucial for the supply of potable water to millions of consumers.
3 Trends Pivotal for Shaping the Water Supply Industry's Future
Fragmented Water Industry Needs Consolidation: Since the U.S. water utility industry is highly fragmented, upgrading aging assets to provide quality services is the need of the hour. Per the American Society of Civil Engineers (ASCE), at present, 50,000 community water systems and 16,000 wastewater treatment systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States. The industry creates operational challenges in meeting the requirement for replacement and adding to the aging water and wastewater infrastructure. Large water utility companies continue to acquire small players to ensure the extension of high-quality services to customers and the investment required to upgrade old and acquired assets. Water conservation and initiatives taken by large water operators in educating their consumers on the efficient use of appliances and detecting leakage should help to prevent wastage.
Aging Infrastructure Needs Huge Investments: The water and wastewater infrastructure is aging and gradually nearing the end of its effective service life. Per the findings of the ASCE, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. It is evident that this industry needs more investment for maintenance and upgrade. Per the 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 Bipartisan Infrastructure Law provided $50 billion to EPA to strengthen the drinking water and wastewater systems of the United States. A major portion of the investment will be directed to upgrading water infrastructure serving disadvantaged communities.
Efficient Use Will Save Precious Water: Usage of water-efficient techniques, the use of advanced water-efficient appliances and timely actions taken to fix pipeline leaks will save precious water. If we use water more efficiently, it will not only lower wastage but reduce monthly utility bills. New methods used to cool turbines of power plants and efficiency in water usage in irrigation for farming reduce water usage. Lower use per person allows water utilities to meet the needs of an expanding customer base without increasing capacity to a great extent. In a way, efficient usage and a reduction in wastage allow water utilities to keep their service rates unchanged for a longer period for consumers and assist water utility operators in increasing their earnings by serving a larger population with the same water supply capacity.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Utility Water Supply industry is a 12-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #37, which places it in the top 15% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects for the near term. 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s earnings estimates have been revised 0.9% upward by analysts for the current year since Jan 1, 2023.
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 Outperforms Sector, Lags S&P 500
The Zacks Utility Water Supply industry has outperformed its sector but lagged the Zacks S&P 500 composite over the past 12 months. The industry has lost 4.7%, narrower than the Utility sector’s decline of 15.2%, while the Zacks S&P 500 composite has gained 8.9% in the same 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 10.06X compared with the S&P 500’s 13.15X and the sector’s trailing 12-month EV/EBITDA of 18.9X.
Over the past five years, the industry has traded as high as 23.26X, as low as 9.96X and at the median of 14.15X.
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 Consider
Consolidated Water Co. Ltd: This Grand Cayman, Cayman Islands-based company, along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems. Consolidated Water operates 11 water production plants with a capacity of 25.5 million gallons per day in four countries. In the past three months, the stock has returned 13.1% against its industry’s decline of 39.3%. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up by 2.1%. The long-term (three to five years) earnings growth rate for the company is currently pegged at 8%. The current dividend yield of the company is 1.77%. Consolidated Water currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CWCO
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 plans to invest $2.9 billion in 2023 to strengthen and expand its existing infrastructure. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up by 0.2%. The long-term (three to five years) earnings growth of the company is currently pegged at 8.18%. The current dividend yield of the company is 1.99%. The company delivered an average surprise of 7.07% in the last four quarters. American Water currently has a Zacks Rank #2 (Buy).
Price and Consensus: AWK
Essential Utilities: The Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. WTRG’s long-term plan is to invest $3.3 billion through 2025 to rehabilitate and strengthen water and natural gas pipeline systems. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has been unchanged. The long-term earnings growth of the company is currently pegged at 5.6%. The current dividend yield of the company is 2.82%. Essential Utilities currently has a Zacks Rank #2.
Price and Consensus: WTRG
Middlesex Water Company: Iselin, NJ-based Middlesex Water, along with its subsidiaries, provides water and wastewater services to its customers. Middlesex Water has plans to invest $267 million during the 2023-2025 period to strengthen its water and wastewater infrastructure. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up by 0.5%. The stock has gained 10.4% in the past three months. The current dividend yield of the company is 1.56%. Middlesex Water currently has a Zacks Rank #2.
Price and Consensus: MSEX