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Consolidated Water Gains From Buyouts & Long-Term Deals

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We recently updated a research report on Consolidated Water Co. Ltd. (CWCO - Free Report) . The company is benefiting from strategic acquisitions, the usage of advanced technology in all water treatment plants and long-term contracts with customers.

Despite the above positives, this Zacks Rank #3 (Hold) stock’s earnings might be adversely impacted by the novel coronavirus outbreak.  

Tailwinds

Consolidated Water utilizes the Reverse Osmosis Technology, one of the most advanced technologies to convert seawater to potable water in all water treatment plants constructed and operated by the company. Per industry research, the global market for desalination is strong and its size is expected to reach $37.6 billion by 2026, doubling from the current level. This development bodes well for its prospects, given Consolidated Water’s focus on the development of desalination plants.

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 and industrial water treatment. The company also acquired 51% of PERC Water Corporation, a water infrastructure provider, which in turn expanded Consolidated Water’s product offerings and presence in the United States. These recent acquisitions are contributing to Consolidated Water’s strong performance.

Its existing long-term contracts with customers provide earnings visibility and help it generate recurring revenues, in turn leading to consistently strong performance. Consolidated Water continues to seek opportunities to enter into new water-supply agreements, renew the existing supply agreements, and increase fresh water production levels in the existing markets.

Headwinds

The outbreak of COVID-19 and extension of lockdown has weakened the markets operated by the company. Although it is not in a position to quantify the financial impact of COVID-19, 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 accounts receivables.

Traditionally, it sells more water during the first and second quarters of the year, when the number of tourists is greater and local rainfall is less in its service territories, than the third and fourth quarters. However, the novel coronavirus is currently taking a toll on the economy, travel plans and tourism, and can have an adverse impact on earnings of the company.

Zacks Rank & Key Picks

Consolidated Water has a Zacks Rank #3 (Hold). Few better-ranked stocks in the same industry include American States Water Company (AWR - Free Report) , The York Water Company (YORW - Free Report)   and Middlesex Water Company (MSEX - Free Report) . While American States Water sports a Zacks Rank #1 (Strong Buy), the other two companies have a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

American States Water delivered average positive earnings surprise of 6.5% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 3.2% in the past 90 days.

York Water Company delivered average positive earnings surprise of 13.6% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 1.7% in the past 90 days.

Middlesex Water Company delivered average positive earnings surprise of 2.2% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 1% in the past 90 days.

Price Performance

Shares of Consolidated Water have gained 6.3% in the past 12 months compared with the industry's 5.3% growth.



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