American Water (AWK) Improves Earned Returns Through Cost-Containment Efforts, Portfolio Swaps and Growth of Nonregulated Business: Heike Doerr, Senior Research Associate, Shares Her Top Utility Picks with TWST

Wall Street Transcript

67 WALL STREET, New York - August 28, 2013 - The Wall Street Transcript has just published its Water Services Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Water Infrastructure Development - Irrigation and Metering Technology - Water Industry Consolidation - Regulatory Headwinds for U.S. Utilities

Companies include: Aqua America Inc. (WTR), Connecticut Water Service Inc. (CTWS), Middlesex Water Co. (MSEX), American Water Works Company, (AWK) and many more.

In the following excerpt from the Water Services Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Who do you like right now in your coverage?

Ms. Doerr: The entire group has enjoyed stock appreciation, which we suspect is related to investment portfolios shifting allocations out of large-cap investments into mid-small-cap stocks. There are nine investor-owned water utilities, and only two that have a market capitalization over $1 billion, Aqua America and American Water.

We currently have an "outperform" on American Water, which we believe will close its trading discount to the group as it improves earned returns through cost-containment efforts, the benefit of recent portfolio swaps, and growth of its nonregulated business. At 7% to 10% EPS CAGR, we believe AWK has the most attractive growth outlook of the group.

Additionally, we have an "outperform" rating on Connecticut Water. Recent expansion into Maine - a new regulatory jurisdiction - through two meaningful acquisitions, and recent legislative actions in both Connecticut and Maine are expected to improve CTWS's opportunity to earn its authorized return, likely accelerating capital investment and increasing its earnings growth.

TWST: Is there anything you would like to add?

Ms. Doerr: Yes, it is worth noting that consolidation of the industry, due to its highly fragmented structure, is an opportunity for the group. Unlike electric or natural gas utilities, the water industry is dominated by public entities such as municipality-owned - munis - water companies, which represent about 85% of water and 98% of wastewater systems.

Investor-owned utilities represent only 16% of the water and 2% of the wastewater market. The water industry is highly fragmented, with roughly 52,000 community water systems and 16,000 community wastewater facilities. Small systems...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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