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A continuous uninterrupted supply of clean potable water and reliable sewer services are essential for healthy and hygienic living. U.S. water utility operators own and utilize more than 2 million miles of pipelines that are getting old to provide 24x7 services. 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. Even then, a large volume of potable water is lost in the United States every day due to pipeline breaks and leakage.
Upgrade and maintenance of old pipelines along with proper usage of potable water and water-efficient appliances can help in stopping the wastage of this priceless resource. However, a huge investment is required to upgrade and maintain the aging U.S. water infrastructure. Per the Environmental Protection Agency, an estimated $750 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years.
In addition, the U.S. government is also planning to invest in upgrading the water infrastructure. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades.
Amid such a backdrop, we run a comparative analysis on two stocks from the Utility - Water Supply industry — California Water Service Group CWT and Primo Water Corporation PRMW — to decide which stock is a better pick for your portfolio now.
Both the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
California Water Service has a market capitalization of $3.08 billion, while Primo Water has $2.59 billion.
The Zacks Consensus Estimate for California Water Service’s 2021 and 2022 earnings is pegged at $1.79 and $1.85 per share, respectively. The 2021 and 2022 bottom-line estimates have increased 1.2% and 0.5%, respectively, in the past 60 days.
The Zacks Consensus Estimate for Primo Water’s 2021 and 2022 earnings is pegged at 64 cents and 70 cents per share, respectively. The 2021 and 2022 bottom-line estimates have increased 10.3% and 7.7%, respectively, in the past 60 days.
In the past year, California Water Service’s shares have gained 33.4% compared with the industry's rally of 10.8%. Shares of Primo Water have gained 13.3% in the same time frame.
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Debt to Capital
Debt to capital is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. California Water Service and Primo Water have a debt to capital of 51.4% and 52.9%, respectively.
Utility companies generally distribute dividends. Currently, the dividend yield for California Water and Primo Water Service is 1.57% and 1.47%, respectively, compared with the industry average of 1.54%.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for California Water Service and Primo Water is 15.7% and 6.3%, respectively. California Water Service has outperformed the industry’s ROE of 10.56%.
Although both the companies are efficiently providing services to customers, California Water Service is a better pick for your portfolio as of now.
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California Water Service Group (CWT) : Free Stock Analysis Report
Primo Water Corporation (PRMW) : Free Stock Analysis Report
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Zacks Investment Research