Aqua America Offers Growth And Income

Dec.18.12 | About: Aqua America, (WTR)

Aqua America (NYSE:WTR) reported year-over-year earnings growth of 20% in its third quarter, which led to higher earnings estimates. As a result, this utility operator has achieved Zacks No. 2 Rank (Buy) status. WTR offers an attractive growth and income proposition to investors, given its dividend yield of 2.8%, recent acquisitions, its focus on infrastructure improvement projects, and its long-term expected earnings growth rate of 6.9%.

Strong Quarter

On Nov. 1, Aqua America reported third-quarter earnings per share of 36 cents, which was nearly 3% above the Zacks Consensus Estimate. In the year-ago quarter, the company earned 30 cents.

Total revenue jumped 12.3% year over year to $214.6 million, primarily due to the positive impact of rate hikes and customer growth. Overall, Aqua America posted quarterly net income of $50.7 million vs. $41.1 million in the same quarter of 2011, an increase of 23.2%.

Going forward, Aqua America's growth trajectory should continue through its focus on acquisitions. In the first nine months of 2012, the company completed 12 acquisitions. Over the same period, it invested $262.8 million in infrastructure improvements projects. The focus was on pipe replacement projects to improve its distribution network, and plant upgrades to enhance water quality and service reliability.

Earnings Momentum

The past two months have seen six of 13 earnings estimates move higher for 2012. Over the same time frame, five of 13 estimates advanced for 2013. The Zacks Consensus Estimate for this year is at $1.09 per share. Meanwhile, the Zacks Consensus Estimate for next year is at $1.19, marking a year-over-year increase of 9.0%.

Consistent Dividend

Aqua America has been consistently paying dividends for more than 65 years, while increasing the dividend rate each year since 1981. The company raised its quarterly dividend rate to 17.5 cents in November 2012 from the prior payout of 16.5 cents. The current annualized rate of 70 cents reflects a dividend yield of 2.8%.

Attractive Valuation

Shares of Aqua America are roughly trading at 20.7x its 12 months forward earnings, a 22.6% premium to the peer group average of 16.86x. A healthy earnings growth prospect warrants the premium valuation of the company. The price-to-book ratio is at 2.61x, a 17.7% discount to the peer group average of 3.17x. The price-to-sales ratio is at 4.55x, on par with the peer group average.

Following the earnings release, shares of Aqua America have fared better than the simple moving average for 200 days.

Aqua America operates regulated utilities that provide water or wastewater services in the United States. It caters to almost 3 million residents in the states of Pennsylvania, Ohio, Illinois, Texas, New Jersey, Indiana, Virginia, Florida, Virginia, and Georgia. The market cap of this company is $3.4 billion.

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