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Water utility Consolidated Water (NASDAQ:CWCO) has a strong footprint in the Caribbean, and through acquisitions and population growth has managed to raise annual revenues from $12 million in 2001 to $38M last year, while its $2.5M earnings multiplied three-fold to $7.5M or $0.59/share. Shares have quadrupled to $31 since 2001, about 40 times this year's expected EPS of $0.80. But Barron's says next year's $1/share forecast seems all wet as Consolidated's main customer, the British Virgin Islands, claims that Consolidated's Tortola island plant gave BVI the option of buying the factory out for under $1.5M.

Buyout talks have been inconclusive, and Consolidated keeps investing in the plant. Several months ago, BVI said it would pay only 40% of Consolidated's asking price for water. Tensions ensued and BVI hasn't paid its bills for months. Consolidated still lists its billed prices as earnings, but the dispute makes it more likely they'll have to compromise on prices, revising prior and forward earnings. They could even lose the factory, hitting revenues and forcing writeoffs. Furthermore, Consolidated's recently spec-built plant on Bar Bay sits idle. Its only potential customer is the litigant BVI. Barron's looks askance at Street forecasts of $1/share earnings in 2008. It thinks CWCO could lose $0.10, and shares could fall as much as 50%.

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Source: Consolidated Water Investors Could Take a Bath - Barron's