MSEX or AWR: Which is a Better Utility Water Supply Stock?
The Zacks Utility - Water Supply industry includes companies that provide potable water and wastewater services to millions of customers across the United States, along with numerous military bases.
To meet the increasing demand of an expanding customer base, water utilities need to expand existing infrastructure while also taking essential steps to repair and upgrade aging water and wastewater infrastructure.
Storage tanks, treatment facilities and desalination facilities are owned by utility operators to provide continuous potable water to all classes of customers. Per the U.S. Environmental Protection Agency, investments of more than $744 billion are required for water and wastewater infrastructure improvements over the next 20 years.
Fragmented water and wastewater service is a major headwind, as small operators lack the financial strength needed for costly upgrades of pipelines. Delays in essential repairs cause pipeline breaks and leaks, resulting in the wastage of gallons of potable water each day. Investor-owned water utilities and the government are sponsoring water and wastewater infrastructure projects to modernize the required infrastructure in light of the current scenario.
In this given backdrop, we have run a comparative analysis on two Zacks Utility – Water Supply companies — American States Water AWR and Middlesex Water MSEX — to decide which one is a better pick for your portfolio.
Both companies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Projections
The Zacks Consensus Estimate for MSEX’s 2023 earnings is pinned at $2.23 per share on revenues of $172 million. This implies an increase of 0.5% in the bottom line in the past 60 days.
The consensus mark for AWR’s 2023 earnings is pegged at $2.96 per share on revenues of $603 million. This implies an increase of 0.3% in the bottom line in the past 60 days.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. The current ROE for Middlesex Water and American States Water is 9.23% and 13.1%, respectively compared with the sector’s 8.98%.
Debt Position & Solvency
The debt-to-capital ratio is a vital indicator of the financial position of a company. It shows the amount of debt used to run a business. Currently, Middlesex Water and American States Water have a debt-to-capital of 45.87% and 52.04%, respectively compared with the industry’s 48.17%.
The times interest ratio for MSEX is 4.6 and that for AWR is 5.4. The ratio being greater than one indicates that both firms have enough financial flexibility to meet interest obligations.
Dividend Yield
Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for Middlesex Water is 1.81% and that for American States Water is 2.1% compared with the Zacks S&P 500 Composite’s average of 2.1%.
Price Performance
In the past three months, shares of MSEX have declined by 12.8%, while AWR’s shares have decreased by 4.4%. The industry declined by 39.6% in the same time frame.
Image Source: Zacks Investment Research
Outcome
Middlesex Water and American States Water are evenly matched and good picks for your portfolio. However, our choice at this moment is AWR, given its better utilization of funds, higher dividend yield and higher solvency ratio compared with MSEX.
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American States Water Company (AWR) : Free Stock Analysis Report
Middlesex Water Company (MSEX) : Free Stock Analysis Report
