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SJW or MSEX: Which Water Utility Should You Retain Now?

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The existing U.S. water and wastewater infrastructure is quite old, and gradually approaching the end of effective life. According to the American Water Works Association, an estimated $1 trillion investment is necessary to maintain and expand the drinking water service to meet demand over the next 25 years. So, a huge effort is needed from private operators, and funding is required from government agencies to upgrade and maintain the aging water as well as wastewater facilities.

Water utility operators own 1 million miles of pipelines that are buried under the soil. Moreover, they own water treatment and desalination plants to supply potable water 24X7 across customer classes. The novel coronavirus outbreak has further highlighted the importance of potable water and wastewater services, as maintaining hygiene is one of the primary ways to keep this highly infectious virus at bay.

With millions of customers staying back at home and facing some degree of financial distress due to the pandemic-led lockdown, water utilities are ensuring 24x7 supply of potable water to all customers in their service territories, even if they fail to pay service dues.

Currently, more than 53,000 water systems in the United States are providing water solutions to customers. The highly fragmented water industry creates operational challenges in meeting the increasing requirement for water. Hence, consolidation in the fragmented industry and regular investments are the need of the hour to extend quality services to customers.

Amid this backdrop, we run a comparative analysis on two water utilities from the Zacks Utility Water Supply industry — SJW Group (SJW - Free Report) and Middlesex Water Company (MSEX - Free Report) — to ascertain which one is the better stock to hold on to right now. Market capitalization of SJW Group is $1.79 billion and the same for Middlesex Water Company is around $1.12 billion.

Both the stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimates Movement

In the past 60 days, the Zacks Consensus Estimate for Middlesex Water’s 2020 earnings has moved 1.4% upward over the past 60 days to $2.12 per share.

The Zacks Consensus Estimate for SJW Group’s 2020 earnings has declined 1.9% over the past 60 days to $2.07 per share.

Debt to Capital

The debt to capital is a good indicator of a company’s financial position that shows how much debt is utilized to conduct business. Middlesex Water has a debt to capital of 42.76% compared with SJW Group’s 62.39%. Middlesex Water’s debt to capital is also lower than the industry’s 51.15%.

Earnings Surprise

Middlesex Water Company delivered an average surprise of 6.9% in the last four

SJW Group delivered an average negative surprise of 26.9% in the last four quarters.

Price Movement

Shares of Middlesex Water have gained 7.2% against SJW Group’s decline of 4.7% in the past 12 months. The Zacks Utility Water Supply industry has declined 1.1% in the same time frame.

One-Year Price Performance

Dividend Yield

Currently, Middlesex Water’s dividend is 1.6% compared with SJW Group’s 2.03%. The industry’s dividend yield is 1.75%.

Our Verdict

Both the water utilities will continue to serve the needs of customers in their service territories. The dividend yield of SJW Group is better than Middlesex Water. However, given the latter’s better debt to capital, estimate revision and price movement than the former, our verdict goes to Middlesex Water.

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Middlesex Water Company (MSEX) - free report >>

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