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4 Water Utility Stocks to Watch in a Prospering Industry
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Water utilities work day in and day out to ensure an uninterrupted supply of clean potable water and reliable sewer services to millions of customers in the United States. These are essential for healthy and hygienic living.
The aging of pipelines is concerning, but water utilities continue with their upgrade and maintenance projects to minimize disruptions in operations. American States Water Company (AWR - Free Report) , with its widespread operations, provides services to domestic customers and military bases, and offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in ones’ portfolio are The York Water Company (YORW - Free Report) Consolidated Water Co. Ltd. (CWCO - Free Report) and SJW Group (SJW - Free Report) .
About the Industry
The Zacks Utility - Water Supply industry includes companies providing drinking water and wastewater services to industrial, commercial, residential customer classes and numerous military bases across the country. Water utility operators own nearly 2.2 million miles of pipelines that are getting old. Utilities continuously replace old pipelines and add new ones to expand operations. Utility operators own storage tanks, treatment plants and desalination plants to supply uninterrupted potable water across customer classes. Despite the ample presence of water across the globe, less than 1% of the total water volume is fit for human use. Given the scenario, the water utilities, apart from ensuring proper infrastructure to supply water, utilize technology to treat saline water and make it fit for consumption.
3 Trends Pivotal for Shaping the Water Supply Industry's Future
Aging Infrastructure Needs Huge Investments: The water and wastewater infrastructure is aging and gradually nearing the end of its effective service life. Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. It is evident that this industry needs more investment for maintenance and upgrade. Per the U.S. Environmental Protection Agency (“EPA”), an estimated $744-billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years. The Bipartisan Infrastructure Law provided $50 billion to EPA to strengthen the drinking water and wastewater systems of the United States. A major portion of the investment will be directed to upgrading water infrastructure serving disadvantaged communities.
Fragmented Water Industry Needs Consolidation: Since the U.S. water utility industry is highly fragmented, upgrading aging assets to provide quality services is the need of the hour. Per ASCE, at present, 50,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in essential pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States. The highly fragmented industry creates operational challenges in meeting the requirement for replacement, and adding to the aging water and wastewater infrastructure. Large water utility companies continue to acquire small companies to ensure the extension of high-quality services to customers and the investment required to upgrade old and acquired assets. Water conservation and initiatives taken by large water operators in educating their consumers on efficient use and appliances to detect leakage should help to prevent wastage.
Efficient Use is Saving Precious Water: An interesting trend in the water industry is reducing per-capita water usage. The reasons for the drop are the use of water-efficient techniques, raising awareness among customers by the water utilities, the use of advanced water-efficient appliances and actions taken to fix pipeline leaks. Efficiency in water usage in irrigation for farming and lower water usage in thermoelectric power due to better cooling methods contributes toward reduced water usage. Lower use per person allows water utilities to meet the need of an expanding customer base without increasing capacity to a great extent. In a way, efficient usage and a reduction in wastage allow water utilities to keep their service rates unchanged for a longer period for consumers and assist water utility operators in increasing their earnings by serving a larger population with the same water supply capacity.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Utility Water Supply industry is a 12-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #88, which places it in the top 35% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Outperforms Sector & S&P 500
The Zacks Utility Water Supply industry has outperformed its sector and the Zacks S&P 500 composite over the past 12 months. The industry has gained 5% against the Utility sector and Zacks S&P 500 Composite’s decline of 1% and 7.1%, respectively.
One Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing water utility stocks, the industry is currently trading at 19.8X compared with the S&P 500’s 11.72X. It is trading above the sector’s trailing 12-month EV/EBITDA of 20.85X.
Over the past five years, the industry has traded as high as 23.27X, as low as 9.96X and at the median of 14.04X.
Water Supply Industry vs S&P 500 (Past 5 yrs)
Water Supply Industry vs Utility Sector (Past 5 yrs)
4 Water Utility Industry Stocks to Keep an Eye On
American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to customers. AWR is providing water and wastewater services to 11 military bases and continues to pursue new long-term contracts from more military bases. In the past year, AWR gained 11.3% compared with its industry’s growth of 5.4%. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has remained static at $2.71 per share. The current dividend yield of the company is 1.71% better than the Zacks S&P 500 Composite’s yield of 1.61%. American States Water currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AWR
The York Water Company: The York, PA-based company provides drinking water and wastewater services. The company is investing systematically to upgrade infrastructure and provide quality services to its customers. York Water intends to use primarily internally-generated funds for its anticipated construction and fund the remainder through the line of credit borrowings. In the past year, the company has returned 5.5% to its shareholders. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up 7% to $1.53 per share. The company reported an earnings surprise of 5.46% in the last four quarters. The current dividend yield of the company is 1.78%. York Water currently sports a Zacks Rank #1.
Price and Consensus: YORW
Consolidated Water Co. Ltd: Grand Cayman, the Cayman Islands-based company, along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. Consolidated Water operates 11 water production plants with a capacity of 25.5 million gallons per day, in 4 countries and is looking for opportunities in new markets to further expand drinking water and wastewater services. In the past year, the stock has returned 66.6%. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has been unchanged. The long-term (three to five years) earnings growth of the company is currently pegged at 8% The current dividend yield of the company is 2.22%. Consolidated Water currently has a Zacks Rank #3.
Price and Consensus: CWCO
SJW Group : The San Jose, CA-based company, along with its subsidiaries, provides water services to its customers in the United States. The company looks for opportunistic water and wastewater system acquisitions that will continue to support its growth potential. SJW Group has a five-year plan to invest $1.3 billion in water and wastewater infrastructure and provide a safe and reliable service to customers. In the past year, the stock has returned 20.7%. Over the past seven days, the Zacks Consensus Estimate for 2023 earnings has remained static at $2.48 per share. SJW Group’s current dividend yield is 1.98%. SJW currently has a Zacks Rank #3.
Price and Consensus: SJW
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4 Water Utility Stocks to Watch in a Prospering Industry
Water utilities work day in and day out to ensure an uninterrupted supply of clean potable water and reliable sewer services to millions of customers in the United States. These are essential for healthy and hygienic living.
The aging of pipelines is concerning, but water utilities continue with their upgrade and maintenance projects to minimize disruptions in operations. American States Water Company (AWR - Free Report) , with its widespread operations, provides services to domestic customers and military bases, and offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in ones’ portfolio are The York Water Company (YORW - Free Report) Consolidated Water Co. Ltd. (CWCO - Free Report) and SJW Group (SJW - Free Report) .
About the Industry
The Zacks Utility - Water Supply industry includes companies providing drinking water and wastewater services to industrial, commercial, residential customer classes and numerous military bases across the country. Water utility operators own nearly 2.2 million miles of pipelines that are getting old. Utilities continuously replace old pipelines and add new ones to expand operations. Utility operators own storage tanks, treatment plants and desalination plants to supply uninterrupted potable water across customer classes. Despite the ample presence of water across the globe, less than 1% of the total water volume is fit for human use. Given the scenario, the water utilities, apart from ensuring proper infrastructure to supply water, utilize technology to treat saline water and make it fit for consumption.
3 Trends Pivotal for Shaping the Water Supply Industry's Future
Aging Infrastructure Needs Huge Investments: The water and wastewater infrastructure is aging and gradually nearing the end of its effective service life. Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. It is evident that this industry needs more investment for maintenance and upgrade. Per the U.S. Environmental Protection Agency (“EPA”), an estimated $744-billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years. The Bipartisan Infrastructure Law provided $50 billion to EPA to strengthen the drinking water and wastewater systems of the United States. A major portion of the investment will be directed to upgrading water infrastructure serving disadvantaged communities.
Fragmented Water Industry Needs Consolidation: Since the U.S. water utility industry is highly fragmented, upgrading aging assets to provide quality services is the need of the hour. Per ASCE, at present, 50,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in essential pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States. The highly fragmented industry creates operational challenges in meeting the requirement for replacement, and adding to the aging water and wastewater infrastructure. Large water utility companies continue to acquire small companies to ensure the extension of high-quality services to customers and the investment required to upgrade old and acquired assets. Water conservation and initiatives taken by large water operators in educating their consumers on efficient use and appliances to detect leakage should help to prevent wastage.
Efficient Use is Saving Precious Water: An interesting trend in the water industry is reducing per-capita water usage. The reasons for the drop are the use of water-efficient techniques, raising awareness among customers by the water utilities, the use of advanced water-efficient appliances and actions taken to fix pipeline leaks. Efficiency in water usage in irrigation for farming and lower water usage in thermoelectric power due to better cooling methods contributes toward reduced water usage. Lower use per person allows water utilities to meet the need of an expanding customer base without increasing capacity to a great extent. In a way, efficient usage and a reduction in wastage allow water utilities to keep their service rates unchanged for a longer period for consumers and assist water utility operators in increasing their earnings by serving a larger population with the same water supply capacity.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Utility Water Supply industry is a 12-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #88, which places it in the top 35% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Outperforms Sector & S&P 500
The Zacks Utility Water Supply industry has outperformed its sector and the Zacks S&P 500 composite over the past 12 months. The industry has gained 5% against the Utility sector and Zacks S&P 500 Composite’s decline of 1% and 7.1%, respectively.
One Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing water utility stocks, the industry is currently trading at 19.8X compared with the S&P 500’s 11.72X. It is trading above the sector’s trailing 12-month EV/EBITDA of 20.85X.
Over the past five years, the industry has traded as high as 23.27X, as low as 9.96X and at the median of 14.04X.
Water Supply Industry vs S&P 500 (Past 5 yrs)
Water Supply Industry vs Utility Sector (Past 5 yrs)
4 Water Utility Industry Stocks to Keep an Eye On
American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to customers. AWR is providing water and wastewater services to 11 military bases and continues to pursue new long-term contracts from more military bases. In the past year, AWR gained 11.3% compared with its industry’s growth of 5.4%. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has remained static at $2.71 per share. The current dividend yield of the company is 1.71% better than the Zacks S&P 500 Composite’s yield of 1.61%. American States Water currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AWR
The York Water Company: The York, PA-based company provides drinking water and wastewater services. The company is investing systematically to upgrade infrastructure and provide quality services to its customers. York Water intends to use primarily internally-generated funds for its anticipated construction and fund the remainder through the line of credit borrowings. In the past year, the company has returned 5.5% to its shareholders. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved up 7% to $1.53 per share. The company reported an earnings surprise of 5.46% in the last four quarters. The current dividend yield of the company is 1.78%. York Water currently sports a Zacks Rank #1.
Price and Consensus: YORW
Consolidated Water Co. Ltd: Grand Cayman, the Cayman Islands-based company, along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent. Consolidated Water operates 11 water production plants with a capacity of 25.5 million gallons per day, in 4 countries and is looking for opportunities in new markets to further expand drinking water and wastewater services. In the past year, the stock has returned 66.6%. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has been unchanged. The long-term (three to five years) earnings growth of the company is currently pegged at 8% The current dividend yield of the company is 2.22%. Consolidated Water currently has a Zacks Rank #3.
Price and Consensus: CWCO
SJW Group : The San Jose, CA-based company, along with its subsidiaries, provides water services to its customers in the United States. The company looks for opportunistic water and wastewater system acquisitions that will continue to support its growth potential. SJW Group has a five-year plan to invest $1.3 billion in water and wastewater infrastructure and provide a safe and reliable service to customers. In the past year, the stock has returned 20.7%. Over the past seven days, the Zacks Consensus Estimate for 2023 earnings has remained static at $2.48 per share. SJW Group’s current dividend yield is 1.98%. SJW currently has a Zacks Rank #3.
Price and Consensus: SJW