WTRG or CWT : Which Utility Water Supply Stock to Hold Now?
An uninterrupted supply of clean potable water and reliable sewer services are essential for healthy and hygienic living. Per the Environmental Protection Agency (EPA), at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. A highly fragmented industry creates challenges in the proper maintenance of infrastructure. Thus, upgrading the aging assets to maintain quality services is the need of the hour. Hence, 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. Large water utilities are making systematic acquisitions to expand operations and make essential investments to upgrade and maintain the aging assets of acquired companies. However, due to the delay in essential pipeline repairs and maintenance, 2.1 trillion gallons of treated water are lost every year in the United States.
Upgrade and maintenance of old pipelines, along with the proper usage of potable water and water-efficient appliances, can help in stopping the wastage of this priceless resource. However, huge investments are required to upgrade and maintain the aging U.S. water infrastructure. Per the EPA, an estimated $744 billion investment is necessary to maintain and expand drinking water and wastewater services to meet demand over the next 20 years.
In addition, the U.S. government is also planning to invest in upgrading 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 — Essential Utilities Inc. WTRG and California Water Service Group CWT — to decide which stock is a better pick for your portfolio now.
Both the stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank(Strong Buy)stocks here.
Essential Utilities has a market capitalization of $13.3 billion, while the same for California Water Service is $3.3 billion.
Growth Projections & Surprise History
The Zacks Consensus Estimate for Essential Utilities’ 2022 earnings is pegged at $1.78 per share on revenues of $1.97 billion. The bottom line suggests a year-over-year increase of 6.6%.
The Zacks Consensus Estimate for California Water Service’s 2022 earnings is pegged at $1.88 per share on revenues of $0.8 billion. The bottom line suggests a year-over-year decrease of 4.1%.
Essential Utilities delivered an average earnings surprise of 1.9% in the last four quarters, while California Water Service delivered a negative average earnings surprise of 2.6% in the last four quarters.
Price Performance
In the past six months, WTRG shares have rallied 9.0% compared with the industry's growth of 5.7%. Meanwhile, shares of CWT have declined 2.1% in the same period.
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Investment Plans
Essential Utilities continues to make systematic investments to strengthen water, wastewater and natural gas infrastructure. Essential Utilities plans to invest $3 billion through 2024 to rehabilitate and strengthen water and natural gas pipeline systems to efficiently serve the expanding customer base.
California Water Service invested $293.2 million and $298.7 million in 2021 and 2020, respectively. The majority of capital expenditures were associated with mains and water treatment equipment. Also, the midpoint of its capital expenditure planned for 2022, 2023 and 2024 is $355 million, $360 million and $365 million, respectively, which will assist California Water Serviceto meet the increasing need to replace and maintain infrastructure.
Return on Equity
Return on Equity (ROE) is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for WTRG and CWT is 8.7% and 9.6%, respectively, compared with the industry’s ROE of 9.6%.
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. Essential Utilities and California Water Service have a debt to capital of 53.6% and 48.1%, respectively, compared with the industry’s average debt-to-capital level of 49.6%.
Dividend Yield
Utility companies generally distribute dividends. Currently, the dividend yield for Essential Utilities and California Water Service is 2.1% and 1.7%, respectively, compared with the industry average of 1.6%.
Outcome
Although these companies are efficiently providing services to customers, Essential Utilities, with its consistent positive earnings surprise, a higher dividend yield and a higher return over the past six months, is a better stock to add to your portfolio.
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California Water Service Group (CWT) : Free Stock Analysis Report
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