Update: Aqua America Q2 2014 Earnings Renew Investors Hopes

Aug.11.14 | About: Aqua America, (WTR)

Summary

WTR delivered impressive earnings that exceeded the consensus estimates, which we were anticipating.

As mentioned in my previous analysis, the company's acquisition plans are expanding rapidly. This trend has been confirmed and strengthened in the first half of 2014 .

Shares jumped after the earnings release and the renewed uptrend appears solid despite the recent bout of risk aversion.

Aqua America (NYSE:WTR), the second-biggest publicly traded U.S. water utility, reported second quarter earnings for 2014 on August 5th. Following the release, its shares had the biggest daily rise since last August. This was a welcome boost, as the technical conditions had begun to deteriorate amid the downward pressures in the overall market.

WTR Price Chart

The report was positive on all major fronts.

Net income rose to $55.6 million from $53.6 million in 2013. Net income per share exceeded the consensus estimates and came in at $0.31 for the quarter, compared to $0.30 for the same period in 2013. Income from continuing operations for the quarter increased to $54.8 million from $53 million in the second quarter of 2013. Operating revenues for the quarter also showed a healthy increase, despite the challenging weather conditions. They increased to $195.3 million compared to $193.9 for the same period in 2013.

Aqua America declared a quarterly cash dividend payment of $0.165 per share, which represents an 8.6 percent increase over the same quarter last year. This is important as we're talking about a company that has paid a consecutive quarterly dividend for 69 years, and raised the dividend 24 times in the past 23 years. Even more impressively, over the past 10 years, the company's annualized dividend has increased at a 7.8 percent compound annual growth rate.

Year to date, the company has invested over $130 million in infrastructure improvements. The management expects that more than $325 million will be invested in 2014 and more than $1 billion invested over the next three years. This is a realistic, if ambitious, goal as the company's internal cash generation is gaining momentum. The planned capital investment projects will include pipe replacements to improve the distribution network, plant upgrades to enhance water quality and other service reliability improvements. In the first half of 2014 Aqua has already completed seven acquisitions and it has promised that several more are to come this year.

Based on the report, we also confirm that the company continues to be the industry's most cost-efficient water utility company with a regulated segment efficiency ratio adjusted for purchased water of 34.8 percent for the trailing twelve months ended June 30, 2014.

The price movement in recent weeks does not fully reflect the firm's progress and its numerous achievements this year. The underlying fundamentals and prospects of Aqua, which I discussed in a previous article, remain very positive and in that sense there is value to be found here. Therefore, it is no surprise that according to analysts' estimates, Aqua America currently has an average rating of "Buy" and an average target price of $29.00, which points to a potential upside of over 20%.

Overall, the solid performance achieved in the second quarter, combined with the raised guidance, the acquisition plans and the investment projects on the horizon, is a source of confidence and optimism for the shareholders.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.