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Strong Sell on Artesian Resources

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Zacks Investment Research downgraded Artesian Resources Corporation (ARTNA - Free Report) to a Zacks Rank #5 (Strong Sell) on May 29, 2013.

Why the Downgrade?

Things aren’t shaping too well for Artesian Resources, as this water utility disappointed with its lackluster financial results for the first quarter of 2013. The company’s earnings per share in the quarter came in at 19 cents versus 29 cents earned in the year-ago quarter. The results were 32.1% below the Zacks Consensus Estimate of 28 cents.

Revenues were down 2.2% year over year to $16.3 million as a 3.2% decline in Water sales revenue more than offset roughly 6% increase in the company’s Non-utility revenue and a 7% increase in Utility revenue from miscellaneous sources.

Talking of costs/margins of Artesian Resources, operating expenses in the quarter rose 3.7% year over year leading to a 470 basis point fall in operating margin. Also, the results were largely hit by increased legal expenses.
Following the release of the results, earnings estimates for Artesian Resources have come down in the last 30 days. The Zacks Consensus Estimate for 2013 decreased by 8.5% to $1.07 while for 2014, the estimate went down by 2.4% to $1.24.

Also, negative earnings surprises in three out of trailing four quarters have led to an average negative earnings surprise of 8.1%. Currently, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of -4.7% for 2013 and 1.6% for 2014.

Other Stocks to Consider

Artesian Resources currently has a market capitalization of $195.6 million. Other stocks to watch out for in the industry are American States Water Company (AWR - Free Report) , Aqua America Inc. (WTR - Free Report) and Consolidated Water Co. Ltd. (CWCO - Free Report) , each with a Zacks Rank #2 (Buy).

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