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Zacks Industry Outlook Highlights Essential Utilities, Primo Water, California Water Service and American States Water
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For Immediate Release
Chicago, IL – July 9, 2024 – Today, Zacks Equity Research discusses Essential Utilities (WTRG - Free Report) , Primo Water Corp. (PRMW - Free Report) , California Water Service Group (CWT - Free Report) and American States Water Co. (AWR - Free Report) .
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. Essential Utilities, with its widespread operations, provides services to domestic customers and offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in one’s portfolio are Primo Water Corp., California Water Service Group and American States Water Co.
About the Industry
The Zacks Utility - Water Supply industry includes companies that provide drinking water and wastewater services to industrial, commercial and residential customers, and military bases. 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 to customers.
The highly fragmented industry creates operational challenges, but increasing efficient water usage by individuals and other industries help ensure that water is not wasted. While a large nation like the United States already has a widespread water infrastructure in place, proper maintenance and upgrade of
3 Trends Pivotal for Shaping the Water Supply Industry's Future
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 the American Society of Civil Engineers (“ASCE”), at present, 50,000 community water systems and 14,000 wastewater treatment systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in pipeline repairs and maintenance, millions of gallons of treated water are lost every year in the United States.
The 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 players 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 the efficient use of appliances and detecting leakage should help prevent wastage.
Possibility of Interest Rate Decline is a Tailwind: Utilities, in order to maintain, upgrade and expand operations, approach capital markets for loans. These utilities have been enjoying near-zero interest rates for many years. However, multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, thus adversely impacting utility operators.
However, the Fed has not increased the benchmark rate since July 2023 but indicated the possibility of one rate cut in 2024. The likely drop in interest rates in 2024 would be a positive for utility operators planning large investments in infrastructure upgrades and the addition of renewable sources of energy to produce electricity.
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 ASCE, 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 investments for maintenance and upgrade.
Per the U.S. Environmental Protection Agency (“EPA”), an estimated $896 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years. The massive investment requirement also creates an opportunity for growth among operators in this space.
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 toward upgrading water infrastructure serving disadvantaged communities. ASCE gives a C- rating to the U.S. drinking water infrastructure and a D+ to the U.S. wastewater infrastructure.
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 #26, which places it in the top 10% of more than 249 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.
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 Lags S&P 500, but Beats Sector
The Zacks Utility Water Supply industry has underperformed the Zacks S&P 500 composite but outperformed its sector in the past 12 months. The industry has lost 0.3%, narrower than the Utility sector’s decline of 2.4%. The Zacks S&P 500 composite has gained 27.7% in the same time frame.
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 13.52X compared with the S&P 500’s 20.9X and the sector’s trailing 12-month EV/EBITDA of 15X.
Over the past five years, the water supply industry has traded as high as 23.28X, as low as 9.96X and at the median of 15.65X.
4 Water Utility Industry Stocks to Watch Now
Below, we have discussed four stocks from the Zacks Utility- Water Supply industry with strong growth potential.
California Water Service Group: The San Jose, CA-based company, along with its subsidiaries, provides water utility and other related services to customers in the United States. The company continues to expand operations through acquisitions and plans to invest $380 million in 2024 to further strengthen its infrastructure, and repair and upgrade its aging assets.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has increased 10.2% to $3.15 per share. The current dividend yield is 2.29%, better than the Zacks S&P composite’s 1.61%. The company delivered a positive surprise of 85.2% in the last four quarters. California Water Service currently sports a Zacks #1 Rank (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Primo Water Corp.: Tampa, FL-based Primo Water provides water solutions to its residential and commercial customers. PRMW is making consistent investments to strengthen its infrastructure to efficiently serve its customers. It aims to invest $153.4 million in 2024.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved up nearly 7.9%. The long-term (three to five years) earnings growth rate is 15.5%. The current dividend yield is 1.7%. The company delivered a trailing four-quarter average earnings surprise of 9.7%. Primo Water currently has a Zacks Rank #1.
Essential Utilities: The Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. WTRG’s long-term plan is to invest $7.2 billion through 2028 to rehabilitate and strengthen its water and natural gas pipeline systems. It is able to reduce regulatory lag and facilitate growth through strategic acquisitions.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has remained unchanged. The company’s long-term earnings growth rate is 5.8%. The current dividend yield is 3.3%. Essential Utilities currently has a Zacks Rank #2 (Buy).
American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to its customers. AWR provides long-term water and wastewater services to military bases and continues to pursue new long-term contracts from more military bases. It aims to invest $611.4 million during 2025-2027.
The Zacks Consensus Estimate for 2024 earnings implies a year-over-year increase of 5.6%. The company’s long-term earnings growth rate is 6.3%. The current dividend yield is 2.37%. It delivered an average earnings surprise of 4.4% in the last four quarters. American States Water currently has a Zacks Rank #3 (Hold).
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Essential Utilities, Primo Water, California Water Service and American States Water
For Immediate Release
Chicago, IL – July 9, 2024 – Today, Zacks Equity Research discusses Essential Utilities (WTRG - Free Report) , Primo Water Corp. (PRMW - Free Report) , California Water Service Group (CWT - Free Report) and American States Water Co. (AWR - Free Report) .
Industry: Water Utility
Link: https://www.zacks.com/commentary/2296263/4-stocks-to-watch-from-the-prospering-water-supply-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. Essential Utilities, with its widespread operations, provides services to domestic customers and offers an excellent opportunity to stay invested in the water utility space. Other utilities worth retaining in one’s portfolio are Primo Water Corp., California Water Service Group and American States Water Co.
About the Industry
The Zacks Utility - Water Supply industry includes companies that provide drinking water and wastewater services to industrial, commercial and residential customers, and military bases. 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 to customers.
The highly fragmented industry creates operational challenges, but increasing efficient water usage by individuals and other industries help ensure that water is not wasted. While a large nation like the United States already has a widespread water infrastructure in place, proper maintenance and upgrade of
3 Trends Pivotal for Shaping the Water Supply Industry's Future
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 the American Society of Civil Engineers (“ASCE”), at present, 50,000 community water systems and 14,000 wastewater treatment systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in pipeline repairs and maintenance, millions of gallons of treated water are lost every year in the United States.
The 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 players 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 the efficient use of appliances and detecting leakage should help prevent wastage.
Possibility of Interest Rate Decline is a Tailwind: Utilities, in order to maintain, upgrade and expand operations, approach capital markets for loans. These utilities have been enjoying near-zero interest rates for many years. However, multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, thus adversely impacting utility operators.
However, the Fed has not increased the benchmark rate since July 2023 but indicated the possibility of one rate cut in 2024. The likely drop in interest rates in 2024 would be a positive for utility operators planning large investments in infrastructure upgrades and the addition of renewable sources of energy to produce electricity.
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 ASCE, 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 investments for maintenance and upgrade.
Per the U.S. Environmental Protection Agency (“EPA”), an estimated $896 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years. The massive investment requirement also creates an opportunity for growth among operators in this space.
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 toward upgrading water infrastructure serving disadvantaged communities. ASCE gives a C- rating to the U.S. drinking water infrastructure and a D+ to the U.S. wastewater infrastructure.
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 #26, which places it in the top 10% of more than 249 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.
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 Lags S&P 500, but Beats Sector
The Zacks Utility Water Supply industry has underperformed the Zacks S&P 500 composite but outperformed its sector in the past 12 months. The industry has lost 0.3%, narrower than the Utility sector’s decline of 2.4%. The Zacks S&P 500 composite has gained 27.7% in the same time frame.
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 13.52X compared with the S&P 500’s 20.9X and the sector’s trailing 12-month EV/EBITDA of 15X.
Over the past five years, the water supply industry has traded as high as 23.28X, as low as 9.96X and at the median of 15.65X.
4 Water Utility Industry Stocks to Watch Now
Below, we have discussed four stocks from the Zacks Utility- Water Supply industry with strong growth potential.
California Water Service Group: The San Jose, CA-based company, along with its subsidiaries, provides water utility and other related services to customers in the United States. The company continues to expand operations through acquisitions and plans to invest $380 million in 2024 to further strengthen its infrastructure, and repair and upgrade its aging assets.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has increased 10.2% to $3.15 per share. The current dividend yield is 2.29%, better than the Zacks S&P composite’s 1.61%. The company delivered a positive surprise of 85.2% in the last four quarters. California Water Service currently sports a Zacks #1 Rank (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Primo Water Corp.: Tampa, FL-based Primo Water provides water solutions to its residential and commercial customers. PRMW is making consistent investments to strengthen its infrastructure to efficiently serve its customers. It aims to invest $153.4 million in 2024.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved up nearly 7.9%. The long-term (three to five years) earnings growth rate is 15.5%. The current dividend yield is 1.7%. The company delivered a trailing four-quarter average earnings surprise of 9.7%. Primo Water currently has a Zacks Rank #1.
Essential Utilities: The Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. WTRG’s long-term plan is to invest $7.2 billion through 2028 to rehabilitate and strengthen its water and natural gas pipeline systems. It is able to reduce regulatory lag and facilitate growth through strategic acquisitions.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has remained unchanged. The company’s long-term earnings growth rate is 5.8%. The current dividend yield is 3.3%. Essential Utilities currently has a Zacks Rank #2 (Buy).
American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to its customers. AWR provides long-term water and wastewater services to military bases and continues to pursue new long-term contracts from more military bases. It aims to invest $611.4 million during 2025-2027.
The Zacks Consensus Estimate for 2024 earnings implies a year-over-year increase of 5.6%. The company’s long-term earnings growth rate is 6.3%. The current dividend yield is 2.37%. It delivered an average earnings surprise of 4.4% in the last four quarters. American States Water currently has a Zacks Rank #3 (Hold).
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.