Recommendation: Buy
| Entry Date | Symbol | Recommendation | Entry Price (USD) | Target 1 (USD) | Target 2 (USD) | Holding Duration | Potential Upside* |
|---|---|---|---|---|---|---|---|
| 7 Feb, 25 | WTRG | Buy | USD 35.33 | USD 37.2 | USD 39.0 | 24 days | 10.4% |
*Potential Upside (%) indicates the expected percentage increase from the Entry Price to the Target 2 Price.
Data Powered by EOD Historical Data (“EODHD”).
Essential Utilities, Inc., through its subsidiaries, operates regulated utilities that provide water, wastewater, or natural gas services in the United States. The company operates through Regulated Water and Regulated Natural Gas segments. It offers water services through operating and maintenance contract with municipal authorities and other parties. The company also provides non-utility raw water supply services for firms in the natural gas drilling industry; and water and sewer line protection solutions, and repair services to households. It serves approximately 8.8 million residential water, commercial water, fire protection, industrial water, wastewater, and other water and utility customers in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, West Virginia, and Kentucky under the Aqua and Peoples brands. The company was formerly known as Aqua America, Inc. and changed its name to Essential Utilities, Inc. in February 2020. Essential Utilities, Inc. was founded in 1886 and is headquartered in Bryn Mawr, Pennsylvania.
Increase in Operating Margin: 35.6% in Q3FY24 vs 33.4% in Q3FY23
Increase in Gross Margin: 62.8% in Q3FY24 vs 60.5% in Q3FY23
Higher Debt-Equity: 1.20x in Q3FY24 vs the industry median of 0.86x
Decrease in Net Margin: 15.9% in Q3FY24 vs 19.5% in Q3FY23
Regulatory Risks, Operational Risks, Environmental and Climate Risks, Market Competition, Economic and Demographic Risks, etc.
| Entry Price | Support* | Target 1 | Target 2 |
|---|---|---|---|
| 35.33 | 32.5 | 37.2 | 39.0 |
Data Source: REFINITIV, Analysis: StockNextt
*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.
Q3 2024 Financial Results
Essential Utilities Inc. (NYSE: WTRG) posted a net income of USD 69.4 million, or USD 0.25 per share, for the third quarter of 2024, down from USD 80.1 million and USD 0.30 per share in Q3 2023. The decline in earnings was attributed to lower regulated natural gas volumes, increased depreciation and interest expenses, and reduced repair tax benefits. However, the company experienced revenue growth driven by regulatory recoveries, increased water sales, and customer expansion, which helped offset some of these financial pressures.
Revenue Expansion and Cost Management
The company reported a 6% year-over-year increase in revenue, reaching USD 435.3 million in Q3 2024 compared to USD 411.3 million in Q3 2023. This growth was fueled by higher rates, surcharges, rising water demand, and increased gas prices. The regulated water segment saw the highest revenue surge, growing 8% to USD 334.5 million, supported by higher rates and increased sales. Additionally, the company reduced operations and maintenance expenses for the water segment by 2%, reflecting ongoing efforts to optimize costs.
Natural Gas Business Performance
Essential’s regulated natural gas segment recorded USD 96.7 million in revenue for Q3 2024, slightly up from USD 94.8 million in the prior-year quarter. Despite the revenue increase, lower gas consumption affected overall performance. However, the company maintained efficiency by reducing operations and maintenance costs by 2% to USD 49.0 million, demonstrating its commitment to cost control and operational stability.
Hurricane Helene's Impact and Response Measures
The company faced operational challenges due to Hurricane Helene, which disrupted several water systems in North Carolina. Aqua North Carolina responded swiftly, restoring service to 90 affected systems by October 19. The company’s effective crisis management highlights its resilience in addressing natural disasters and ensuring uninterrupted service for customers.
Year-to-Date Earnings Growth
For the first nine months of 2024, Essential reported a net income of USD 410.6 million, or USD 1.50 per share, reflecting a 9% increase from USD 362.8 million, or USD 1.37 per share, in the same period of 2023. The earnings boost was primarily driven by gains from energy plant sales in Q1 and favorable weather conditions. While revenue for the period stood at USD 1,481.7 million, a 6% decline due to lower gas costs, operational expenses increased by only 1% year-over-year, underscoring disciplined cost management.
Dividend Payments and Financial Stability
Essential declared a quarterly cash dividend of USD 0.3255 per share on October 30, 2024, payable on December 2, 2024, continuing its 79-year streak of uninterrupted dividend distributions. In addition, the company issued USD 500 million in three-year notes during Q3 2024, which helped lower short-term borrowing costs and mitigate interest rate risks, ensuring financial stability for ongoing operations and capital investments.
Infrastructure Investments and Expansion Strategy
In the first nine months of 2024, Essential invested approximately USD 932.5 million in infrastructure improvements and remains on track to allocate between USD 1.3 and USD 1.4 billion for the year. Over the next five years, the company plans to invest around USD 8.0 billion in capital projects, including replacing aging gas pipelines, expanding water and wastewater services, addressing PFAS contamination, and reducing methane emissions. Since 2015, the company has added over 129,000 new customers and increased its rate base by USD 500 million through strategic acquisitions.
Future Outlook and Sustainability Initiatives
Essential has reinstated its long-term financial projections, expecting net income per share to range between USD 2.07 and USD 2.11 in 2025, with an anticipated annual earnings growth rate of 5-7% through 2027. The company plans to invest between USD 1.4 and USD 1.5 billion in regulated infrastructure in 2025, further expanding its water and natural gas operations. Additionally, Essential remains dedicated to sustainability, with a goal of reducing greenhouse gas emissions by 60% by 2035 and ensuring compliance with EPA PFAS contamination standards across all its service areas.
Considering recent key business, financial updates, current trading levels, and key business risks, a ‘Buy’ recommendation has been given on Essential Utilities Inc (NYSE: WTRG) at the closing price of USD 35.33, as on February 06, 2025.
Data Powered by EOD Historical Data (“EODHD”).
Sector: Utilities Industry: Utilities - Regulated Water
| Company | Change (USD) | Price (USD) | Trailing PE (x) | Forward PE (x) | Price Sales TTM (x) | Price to Book Value (x) | Enterprise Value to Revenue (x) | Enterprise Value to EBITDA (x) |
|---|---|---|---|---|---|---|---|---|
| WTRG Essential Utilities Inc |
1.25 3.17% | 40.64 | 20.76 | 18.42 | 4.45 | 1.69 | 7.39 | 16.08 |
| AWK American Water Works |
5.77 3.95% | 151.96 | 25.99 | 22.88 | 5.65 | 2.46 | 8.59 | 15.26 |
| SBS Companhia de Saneamento Basico do Estado de Sao Paulo SABESP ADR |
0.77 4.30% | 18.69 | 14.15 | 9.14 | 0.43 | 1.66 | 0.57 | 1.61 |
| STRNY Severn Trent PLC PK |
2.11 6.41% | 35.02 | 63.51 | 19.92 | 4.38 | 9.15 | 8.76 | 19.74 |
| SVTRF Severn Trent PLC |
- -% | 32.39 | 62.50 | 19.65 | 4.41 | 9.04 | 8.71 | 19.62 |
Data Powered by EOD Historical Data (“EODHD”).
Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a short duration. Recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is February 06, 2025. The reference data in this report has been partly sourced from REFINITIV.
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Target: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Target 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Target 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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