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AWR or MSEX: Which Water Utility Stock Should You Buy Now?

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

Water will play a very critical role in the prevention of the spread of the novel coronavirus on a global basis. Washing hands properly with soap at regular intervals is the primary way of not getting infected and breaking the chain of transmission. Amid the financial hardship caused to many consumers due to the outbreak of COVID-19, many water utilities across the United States have decided to continue providing services despite the failure of payment of service dues.

This unprecedented situation created by COVID-19 has once again pointed out the significance of potable water and wastewater services. Per the United States Environmental Protection Agency (“EPA”), the COVID-19 virus has not been detected in drinking-water supplies. Based on the current finding, the risk to water supplies is low. EPA advises that Americans can continue to use and drink water from their tap as usual.

In this article, we run a comparative analysis on two water utilities — American States Water Company (AWR - Free Report) and Middlesex Water Company (MSEX - Free Report) — to ascertain which stock should be retained by investors at the moment. Both the companies currently have a Zacks Rank #2 (Buy). The companies have market capitalization of $2.99 billion and $1.17 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 and revenues is pegged at $2.27 per share and $483.5 million, respectively. The bottom- and top-line estimates suggest 6.6% and 2% year-over-year increase, respectively.

The consensus mark for Middlesex Water Company’s 2020 earnings and revenues is pegged at $2.06 per share and $143.3 million, respectively. The bottom- and top-line projections suggest 2.5% and 6.4% year-over-year increase, respectively.

Price Performance

Shares of American States Water have rallied 10.5% compared with the industry’s 4.9% growth in the past 12 months. Shares of Middlesex Water Company have gained 13.5% in the same time period.

 


Dividend Yield

Currently, the dividend of American States Water stands at 1.49% compared with Middlesex Water’s 1.51%. The dividend yield of both the utilities is lower than the industry average of 1.9%.

Debt to Capital

Debt to capital is a good indicator of a company’s financial position. The indicator shows how much debt is used to conduct the business. American States Water has a debt to capital of 46.5% compared with Middlesex Water’s 42.9%. Debt to capital of both the utilities is lower than the industry average of 48.6%.

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 Middlesex Water was 13.4% and 11.8%, respectively.

The Verdict

While American States Water has an edge over Middlesex Water in terms of ROE, our verdict goes to the latter in view of better revenue growth projection, price performance, dividend yield and debt/capital ratio than the former.

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Middlesex Water Company (MSEX) - free report >>

American States Water Company (AWR) - free report >>