Essential (WTRG) Gains From Buyouts Amid Rate Hike Woes
Essential Utilities’ WTRG strategic acquisitions, organic ventures and systematic capital expenditures will collectively expand and strengthen its water, wastewater and natural gas infrastructures.
WTRG - which currently has a Zacks Rank #4 (Sell) - is subject to unfavorable weather conditions and interest rate hikes.
Tailwinds
Massive infrastructural investments are required to upgrade and maintain the water utilities, as old and soiled water pipelines are quickly nearing their effective service life. Essential Utilities plans to invest $3.3 billion from 2023 through 2025. It is committed to lowering emissions and aims to reduce annual emissions by 60% by 2035. Rate hike application and approval from the commission will further help the company to recoup expenditures and fund future capital projects.
The highly fragmented U.S. water utility space requires consolidation. Essential Utilities is actively exploring opportunities to expand utility operations by acquiring municipal assets. In 2022, WTRG completed three acquisitions, which added 23,175 customers. It expects the water and wastewater customer base to increase 2-3% year over year in 2023 through acquisitions and organic means.
Essential Utilities continues to increase shareholders' value through annual dividend increases. The company has been paying dividends for the past 78 years. Its dividend rate hike, approved in February 2023, marked the 32nd consecutive year of dividend increases. The June 2023 raise represents a 7% year-over-year increase.
Headwinds
The water utility business is capital-intensive and requires steady capital investments. Any disruption in capital markets and the ongoing interest rate hike might make it difficult for Essential Utilities to raise funds at a favorable rate.
Other major factors affecting the company’s business and financial conditions are the risk of water contamination, stringent government regulations and fluctuating weather conditions.
Stocks to Consider
Some better-ranked utilities in the same sector are Veolia Environnement VEOEY, Global Water Resources GWRS and NewJersey Resources NJR. Veolia Environnement sports a Zacks Rank #1 (Strong Buy) while Global Water Resources (GWRS) and NewJersey Resources carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Veolia Environnement, Global Water Resources and NewJersey Resources’ 2023 earnings per share indicates year-over-year growth of 11.7%, 29.2% and 6%, respectively.
Long-term (three- to five-year) earnings growth Veolia Environnement, Global Water Resources and NewJersey Resources is pegged at 206.8%, 15% and 5.6%, respectively.
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NewJersey Resources Corporation (NJR) : Free Stock Analysis Report
Veolia Environnement SA (VEOEY) : Free Stock Analysis Report
Global Water Resources, Inc. (GWRS) : Free Stock Analysis Report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
