Utilities are one of the safest investment options, as they are domestic focused, regulated and enjoy consistent demand from customers. The U.S. water infrastructure is old and significant funding is required to maintain the existing water as well as wastewater systems.
However, funds generated from internal sources are not sufficient to conduct long-term projects and the utilities had to depend on credit market for funds. Consequently, rise in interest cost will increase the cost of capital for utilities that might limit their ability to pay dividends and buy back shares.
All regulated water utilities make constant investments to strengthen operations. A common phenomenon in water utilities is consolidation. Major water companies are trying to acquire small players and enhance the quality of services. It is easier for major companies to make arrangement for funds. Therefore, consolidation is likely to boost the necessary investments required for the aging United States water and wastewater infrastructure improvements.
In this article we do a comparative analysis on two water utilities — California Water Service Group (CWT - Free Report) and Aqua America, Inc. (WTR - Free Report) — to ascertain which is a better performer and a suitable hold option right now.
Zacks Rank & Market Cap
California Water currently carries a Zacks Rank #3 (Hold). The company has a market capitalization of around $2.21 billion.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Aqua America currently holds a Zacks Rank #3. It has a market capitalization of $5.90 billion.
The Zacks Consensus Estimate for California Water’s 2019 earnings per share (EPS) is pegged at $1.42, reflecting year-over-year growth of 16.66%. Its long-term earnings growth rate is pegged at 7%.
The Zacks Consensus Estimate for Aqua America’s 2019 EPS is at $1.49, reflecting year-over-year rise of 5.67%. Its long-term earnings growth rate is pegged at 5.33%.
Shares of California Water have gained 3.2%, against the industry’s decline of 6.3% in the past 12 months. Shares of Aqua America have lost 14.6% in the same time period.
Currently, the dividend yield for California Water is at 1.63%, lower than Aqua America’s 2.64%. Aqua America’s dividend yield is better than the industry’s 2.07% and Zacks S&P 500 composite’s 2.16%
The debt-to-capital ratio is a good indicator of the financial position of a company. The indicator shows how much debt is used to conduct the business. California Water has a debt-to-capital ratio of 50.08% compared with Aqua America’s 52.56%. Though the company’s debt-to-capital ratio is higher than the industry’s 42.70, California Water is in a better position.
While Aqua America has an edge in some of the above-mentioned parameters, our verdict goes to California Water considering better long-term earnings growth projections and price performances.
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