The outbreak of pandemic has once again highlighted the importance of potable water and wastewater services. The Zacks Utility - Water Supply industry includes companies that are involved in providing drinking water and wastewater services to industrial, commercial and residential customer classes.
Water utility operators own more than 1 million miles of pipelines that are buried under the soil, and a major portion of these is nearing the end of effective service life. Per the Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet the demand over the next 20 years. So a huge effort is needed from private operators and funding is required from government agencies to upgrade and maintain the aging water and wastewater facilities.
The water utility operators are investing in infrastructure and are recouping the same through rate revisions. The scope for investment and regulated nature of the industry create a huge opportunity for growth for water utility operators. In this very fragmented industry, merger and acquisitions also offer growth prospects to the players. The big water utilities resort to systematic acquisitions to expand their market reach and customer base.
In the past three months, water supply industry has returned 9.1%, higher than the Zacks S&P 500 Composite’s growth of 8.7%. The possibility of availability of coronavirus vaccine in 2021 and reopening of industrial and commercial activities will further increase demand for water and water treatment plants. This Zacks Utility Water Supply industry is a 12-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #108, which places it in the top 43% of more than 250 Zacks industries.
Water Supply Stocks in Focus
Amid this backdrop we focus on three water utility stocks that have returned more than the S&P 500 in the past three months. In addition, the stocks have either Zacks Rank #1 (Strong), #2 (Buy) and #3 (Hold). All stocks currently have a market capitalization of more than $2,500 million. These stocks also pays dividend to shareholders. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price Performance (Three months)
California Water Service Group CWT : This San Jose, CA-based company provides water and wastewater services in a few states. It aims to invest nearly $809 million to $828 million between 2019 and 2021 to strengthen its infrastructure. The company delivered a positive earnings surprise of 70.2% in the last quarter. The current dividend yield of the company is 1.63%.
Over the past 30 days, the Zacks Consensus Estimate for 2020 has moved up 7.3% while the same for 2021 has remained unchanged. The stock has gained 20.1% over the past three months. California Water Service currently sports a Zacks Rank #1.
Primo Water Corporation PRMW: This Tampa, FL-based company provides home and office bottled water delivery and water filtration services in North America and Europe. It is focused on cost containment initiatives to enhance margins, and is working to expand its operation in the European residential base. The company pulled off a positive earnings of 65%, on average, in the past four quarters. The current dividend yield of the company is 1.48%.
The Zacks Consensus Estimate for Primo Water’s 2020 and 2021 earnings has moved up 20.9% and 17.3%, respectively in the past 60 days. The stock has gained 10.3% over the past three months. Primo Water currently has a Zacks Rank #2.
Essential Utilities, Inc WTRG: This Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. It has a well spread out water infrastructure to provide quality services to its expanding customer base. Its long-term plan is to invest $2.8 billion between 2020 and 2022 to rehabilitate and strengthen water and natural gas pipeline systems. The strong customer base of the company will boost demand and enable the company to continue its strong performance. The company delivered a positive earnings of 3.9%, on average, in the past four quarters. The current dividend yield of the company is 2.11%.
The Zacks Consensus Estimate for Essential Utilities’ 2021 earnings and revenues suggests a rise of 5.6% and 34.2%, respectively, from the year-ago reported numbers. Essential Utilities currently has a Zacks Rank #3.
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