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Advanced Technologies & Acquisitions Aid Consolidated Water

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Consolidated Water (CWCO - Free Report) is involved in the development and operation of seawater desalination plants, as well as water distribution systems.

We recently updated a research report on this Zacks Rank #3 (Hold) stock. The company is poised to benefit from strategic acquisitions and utilization of advanced technologies to convert seawater to potable water.

Tailwinds

Nearly 97% of the Earth’s water is in the ocean. To harness this resource, Consolidated Water utilizes the Reverse Osmosis Technology, which is one of the most advanced technologies to convert seawater to potable water at all water treatment plants constructed and operated by it.

The company follows a simple strategy, i.e., concentration on areas having ample demand for drinking water where the company can provide water on a profitable basis and in favorable regulatory environments. It has operations in the United States and three other countries.

The company aims to expand operation in complementary service industries, which will complement the existing business operations. It will pursue these opportunities either on its own or through joint ventures, strategic alliances and acquisitions. In sync with this business strategy, the company acquired 100% interest in Aerex Industries, Inc., a U.S. original equipment manufacturer and service provider of a wide range of products and services applicable to municipal water, as well as industrial water treatment. The Aerex buyout will provide support to the manufacturing segment.

Consolidated Water is not the only company that is making acquisitions in the fragmented water utility space. We can see water utilities like American Water Works (AWK - Free Report) and Essential Utilities (WTRG - Free Report) , among others, making strategic acquisitions to expand their services in the United States.

Headwinds

During the end of second-quarter 2020, the company received notification at the State of Baja California, Mexico that terminated the contract for the construction and operation of a desalination plant and aqueduct in Rosarito, Mexico. This is very disappointing for Consolidated Water amid this unprecedented economic crisis. The company is still trying to figure out ways to recoup the investment made in the development of the project.

The COVID-19 outbreak and resultant lockdown have weakened the markets operated by Consolidated Water. Although it is not in a position to quantify the financial impact of the COVID-19 pandemic, yet the substantial decline in economic activities will likely have a material adverse impact on the company’s consolidated financial condition and ability to collect the outstanding account receivables.

Price Performance

In the year-to-date period, shares of the company have underperformed the industry.

Zacks Rank

Consolidated Water currently carries a Zacks Rank #3. A better-ranked stock from the same utility sector is MGE Energy Inc. (MGEE - Free Report) , currently having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MGE Energy has a long-term (three to five years) earnings growth rate of 4.4%. The Zacks Consensus Estimate for 2020 earnings has increased 5.2% to $2.62 per share in the past 60 days.

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