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AWR or WTR: Which Water Utility Stock Has Better Prospects?

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The companies under Zacks Utility - Water Supply industry are engaged in providing 24x7 water and wastewater services.  With steady increase of demand for water related services, these companies have ample opportunities to expand from in the industry.

To maintain uninterrupted service, the water companies invest in upgrade and maintenance of infrastructures. Water industry is highly fragmented with 50,000 water and 15,000 wastewater service providers present in the United States. Since a major portion of the pipelines used to provide essential services are old and obsolete, massive investment will be required to upgrade as well as maintain water and sewer pipelines. Consolidation is essential in this industry as major water utilities with stronger financial position are capable of making required investments.

In this article we run a comparative analysis on two water utilities — American States Water Company (AWR - Free Report) and Aqua America, Inc. WTR — to ascertain which stock should be retained by investors. Both the companies currently carry a Zacks Rank #3 (Hold) and have market capitalization of $3.19 billion and $9.97 billion, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Projections

The consensus mark for American States Water’s 2020 earnings is pegged at $2.16 per share on revenues of $481 million. The bottom-line figure suggests a 3.35% year-over-year increase. The same for the top line calls for a 0.63% rise on a year-on-year basis. The company’s long-term (3 to 5 years) earnings growth rate is pegged at 8%.  

The consensus mark for Aqua America’s 2020 earnings is pegged at $1.61 per share on revenues of $2.03 billion. The bottom-line figure suggests a 10.27% year-over-year increase. The same for the top line indicates a surge of 127.87% on a year-on-year basis. The company’s long-term (3 to 5 years) earnings growth rate is pegged at 6.10%.  

Price Performance

Shares of American States Water have rallied 31.1% compared with the industry’s growth of 34.1% in the past 12 months. Shares of Aqua America have gained 37.2% in the same time period.

Dividend Yield

Currently, the dividend of American States Water is at 1.41% compared with Aqua America’s 2.03%. Aqua America’s dividend yield is better than the industry’s 1.66% and Zacks S&P 500 composite’s 1.79%

Debt-to-Capital Ratio

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. American States Water has a debt-to-capital ratio of 44.97% compared with Aqua America’s 42.97%.  Aqua America’s debt-to-capital ratio is lower than the industry’s 43.60%.

Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE in the trailing 12 months for American States Water and Aqua America was 13.23% and 8.81%, respectively. American States Water has outperformed the industry’s ROE of 9%.

The Verdict

While American States Water has an edge in ROE, our verdict goes to Aqua America considering better growth projections, price performances, dividend yield and debt/capital ratio.

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