Aqua America: A Growth Water Play, Or A Defensive Stock (WTR)

If Aqua America (NYSE:WTR) isn’t the ultimate water play in the U.S. and isn’t the ultimate sort of ‘defensive stock for a crummy market," then it is hard to imagine what is.  The problem is that even with the water investing angle the valuations make it feel like more of a growth stock.  That is the constant battle in the stock, particularly since it operates under mostly regulated markets.

The company met expectations with $0.18 EPS today and here are some other developments it has made:  Aqua America has been awarded rate increases in eight operating jurisdictions in Pennsylvania, New Jersey, Ohio, Virginia and four other states designed to increase total operating revenues on an annual basis by approximately $13.8 million. Eight more rate cases have been filed and are pending for water and sewer systems located in Florida, North Carolina, Maine, Indiana and Virginia. Further cases are planned for filing this year for water and wastewater systems in Pennsylvania, Indiana, Missouri, New Jersey, Illinois, North Carolina and Ohio.

The company expects to invest approximately $250 million in capital projects this year.  Aqua America has recently acquired 13 utility systems that collectively serve more than 33,000 people, and realized new revenues of $15.4 million from these transactions and other acquisitions closed since the second quarter of 2006.

If Aqua America meets fiscal Dec-2007 targets, it trades at 29.5-times this years earnings (and 26-times 2008 projected earnings).  This is the go-to water name for those looking to cash in on water investing.  If toilet flushing, shower taking, and water drinking are not steady then it is hard to imagine what else is.  Historically this is a utility.  The earnings multiples are big, partially on the "water investing premium" and partially on the fact that you don’t have many competing interests for water once those systems go into place.  It will have to really push for these rate hikes and will have to manage costs better for it to keep these high multiples. 

Its 52-week trading range is fairly tight at $20.50 to $24.94.  Shares were slightly down at the open, and now shares have just crossed into positive territory.

Jon C. Ogg
August 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.