The U.S. water infrastructure is aging and massive funding is needed to upgrade the quality of the U.S. water infrastructure. Per an American Water Works Association ("AWWA") report, the cost of restoring aging underground water pipelines in the United States will be at least $1 trillion in the next 25 years. The AWWA report indicates more than 200,000 water line breaks per year in the United States with more than 7 billion gallons of water leaking out of aging pipes every year.
Amid such a backdrop, in this article, we run a comparative analysis of two water utilities — Middlesex Water Company (MSEX - Free Report) and Global Water Resources, Inc. (GWRS - Free Report) — to ascertain which one performed better and is a suitable investment option right now.
All the regulated water utilities are investing to strengthen operations and recoup the same through rate hikes. Consolidation is the need of the hour in the fragmented U.S. water utility space. U.S. water utility operation is highly fragmented and there are a large number of small operators serving only a few hundred customers. It becomes very difficult for small operators or municipalities to make large investments to upgrade and expand their water and wastewater infrastructure.
One of the primary reasons for weakening water infrastructure is the gradual decline in the Federal government funding for water infrastructure projects. Per the U.S. Water Alliance, the federal government funded 63% of spending in water infrastructure four decades ago, which has come down to 9% now.
However, large water companies are continuously making arrangement for funds to carry out these major overhauls. Consolidation in this highly fragmented water industry would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.
Let’s ascertain, which water utility is a better pick now
Earnings & Surprise Trend
Global Water Resources’ first-quarter 2019 adjusted earnings beat the Zacks Consensus Estimate by 200%. The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, with the average being 39.58%.
Middlesex Water Company’s first-quarter 2019 operating earnings surpassed the Zacks Consensus Estimate by 25.81%. The company’s average positive surprise in the trailing four trailing quarters is 19.52%.
Shares of Middlesex Water Company and Global Water Resources have gained 45.6% and 7.4%, respectively, compared with the industry’s 35.9% rally in the past 24 months. The price movement of Middlesex Water Company is better than that of Global Water Resources.
Return on Equity (ROE)
ROE is a measure of a company's efficiency in utilizing its shareholders' funds. ROE for Global Water Resources and Middlesex Water Company stands at 13.74% and 14.14%, respectively. Notably, the industry's ROE currently stands at 10.25%.
Middlesex Water Company and Global Water Resources’ debt/capital ratio stands at 38.17% and 80.90%, respectively, compared with its industry’s average of 39.90% and the Zacks S&P 500 composite’s 41.72%.
In the past 60 days, the Zacks Consensus Estimate for Global Water Resources’ 2019 earnings has moved up 15.4% to 15 cents. The Zacks Consensus Estimate for Middlesex Water Company’s 2019 earnings has moved up 5.9% in the said period to $2.17.
Currently, Middlesex Water sports a Zacks Rank #1 (Strong Buy) and Global Water Resources (GWRS - Free Report) carries a Zack #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Middlesex Water and Global Water Resources are operators in the U.S. water industry, and are investing on an ongoing basis to strength their infrastructure, with an objective to provide better services to customers.
Global Water Resources is ahead of Middlesex Water in some of the parameters mentioned above. However, our verdict goes to Middlesex Water, given its better rank and ROE compared with Global Water Resources.
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