Shares of Aqua America Inc. (NYSE:WTR) have underperformed the Zacks Utility Water Supply industry in the last 12 months. The stock has returned 6.2% compared with the industry’s rally of 10.1 %. The company witnessed deterioration in 2018 estimates, which fell 2.08% in the last 30 days. Aqua America carries a Zacks Rank #4 (Sell).
Adhering to safety measures is an important factor of water utility. Quality tests, monitoring and treatment incur extra cost. Additionally, any form of contamination can result in disruption of water supply and services.
Steady investment toward maintenance, upgrade and replacement of old pipelines is mandatory. Increased interest rates and possibility of more interest rate hikes in 2018 might make it difficult for Aqua America to raise funds. This is likely to have an adverse impact on capital expenditure and dividend payment.
The company is trading at a premium at the current valuation level. Aqua America’s P/E ratio is 23.87%, a premium compared with industry average of 18.77%.. Return on equity of 12.7% is lower than the industry average of 15.2%. Also, the price earnings growth ratio, which determines the relative trade-off between a stock, earnings generated per share and the company's expected growth, is 4. This is higher than the industry average of 2.74.
The water utilities are subject to certain federal and state environmental laws and regulations as well as weather conditions. Unfavorable economy can reduce demand for water.
Stocks to Consider
A few better-ranked stocks in the same industry are Connecticut Water Service, Inc. (NASDAQ:CTWS) , American States Water Company (NYSE:AWR) and American Water Works (NYSE:AWK) . American Water Works and Connecticut Water Service carry a Zacks Rank #3 (Hold), while American States Water holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Connecticut Water Service delivered a positive surprise of 28.57% in the previous quarter's earnings. Expected EPS growth for next 5 years is 6.00%.
Last quarter, American States Water delivered a positive earnings surprise of 2.86%. Expected EPS growth for next 5 years is 5.00%.
American Water Works reported a positive earnings surprise of 4.55% in the preceding quarter. Expected EPS growth for next 5 years is 7.50%.
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Connecticut Water Service, Inc. (CTWS): Free Stock Analysis Report
American Water Works (AWK): Free Stock Analysis Report
Aqua America, Inc. (WTR): Free Stock Analysis Report
American States Water Company (AWR): Free Stock Analysis Report
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