Aqua America Inc.
) is a premier water utility with relatively low risk earnings
growth and an expanding dividend that yields a solid 2.7%.
Positioned in a niche industry with high barriers to entry, this
Zacks #2 Rank (Buy) enjoys near-monopoly status in its area of
operation. On top of this, the utility's best-in-class cost control
and limited credit market exposure presents a unique opportunity to
own a safe stock.
Impressive 2Q, More to Come
Aqua America reported second quarter earnings per share of 30 cents
on July 30, beating the Zacks Consensus Estimate of 28 cents by 7%
and the year-ago earnings of 25 cents by 20%. Revenues of $198.2
million were up 11% year over year from $178.3 million, and also
surpassed the Zacks Consensus Estimate of $196.0 million. Results
were driven by positive rate relief and cost controls.
Looking ahead, the utility's April start-up of its Marcellus shale
pipeline joint venture with Penn Virginia Resource Partners L.P. (
) is likely to be a key catalyst in diversifying its portfolio
outside of the core business of regulated water services. The
venture aims to supply fresh water to energy companies' drill sites
in the region.
Additionally, with extremely hot weather set to continue across
WTR's major markets of Pennsylvania and New Jersey, the second half
of 2012 looks even better.
Consistent, Secure and Regularly Expanding
Aqua America pays an annual dividend of 70 cents per share,
yielding a solid 2.7%. The utility hiked its dividend payout by
6.1% earlier this month, marking the 22nd dividend increase in the
past 21 years. Aqua America has a long and consistent dividend
paying record, going back some 65 years.
Moreover, Aqua America's current dividend caps the payout ratio
around 65%, reasonable and in line with peers. This indicates
enough headroom for future dividend increases given the utility's
strong management and solid financial position.
Earnings Set to Move Up
Based on the continued base rate growth, disciplined business
strategy and prudent financial management, seven out of 13
estimates for 2012 have moved higher in the past 7 days. The Zacks
Consensus Estimate has moved up by a penny (or 1%) to $1.08.
For 2013, six of 13 estimates moved north over the same time frame,
again helping the Zacks Consensus Estimate advance by a penny (or
1%) to $1.18.
Given the 94 cents per share earned in 2011, the projected growth
rate stands at 15% for 2012. If Aqua America hits the estimate in
2013, the annual growth rate will be 9%.
Shares of Aqua America are going for about 23.8 times forward
estimates, which seems a bit pricey but should not disappoint
investors given the utility's earnings and dividend growth outlook.
But more importantly, the trailing 12-month return on equity (ROE)
of 10.7% - much better than its peer group average of 9.3% - speaks
to Aqua America's solid management that churns out consistent
results year after year.
Market Performance & Technicals
Aqua America operates in an industry where large earnings surprises
are relatively unheard of and, therefore, the stock more often than
not trades at a decent level without wild movements. But since
mid-April, shares have been in an upward channel, rising
approximately 20% and setting a new 52-week high in the process. As
drought-like conditions continue to scorch the U.S., the stock
looks poised to add to its gains.
Opportunities for drinking water suppliers like Aqua America are
set to improve, as it captures the economic benefit of dealing with
a natural resource with no substitute and future projected
Founded in 1886, Bryn Mawr, Pennsylvania-based Aqua America is one
of the largest publicly traded regulated water and wastewater
utility holding companies in the U.S., catering to almost 3 million
residents across a number of states.
AQUA AMER INC (WTR): Free Stock Analysis Report
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