Investing

Would a Biden Presidency Improve the Outlook for These 8 Water Companies?

American States Water

Not only does American States Water Co. (NYSE: AWR) provide water service to about 285,000 California customers, but also water system services to U.S. military bases around the country under long-term (50 years) contracts. Military contracts are a mainstay of water companies’ profits because the contracts typically offer better margins and longer terms than do municipal deals. The firm’s market cap is about $2.9 billion.

Shares closed Thursday at $78.99, down about 1.6% for the day, in a 52-week range of $65.11 to $96.64. At the closing price, the stock traded at about 32.5 times expected 2021 earnings and more than 18% below its 52-week high. The company pays a dividend yield of 1.72%.

California Water Service

California Water Service Group (NYSE: CWT) is the fifth-largest publicly traded water utility and services group in the country, with a market cap of about $2.4 billion. It serves more than 500,000 customers in California, Hawaii and Washington. In the second quarter, the company’s results were negatively affected by a delay in its general rate case in California.

Its stock closed at $48.37 on Thursday, down about 0.5%, in a 52-week range of $39.74 to $57.48. Shares trade around 16% below their 52-week high, with a potential upside of 2.7% based on a price target of $49.67. The stock trades at about 28.5 times expected 2021 earnings, and the dividend yield is 1.77%.

Evoqua Water Technologies

This supplier of a variety of specialty equipment and services to serve the water and wastewater industry has a market cap of about $2.4 billion. Evoqua Water Technologies Corp. (NYSE: AQUA) customers include semiconductor manufacturing firms, specialty chemical firms, pulp and paper companies, and many other industries. Last week the company priced a secondary stock offering of 8 million shares at $20.75.

Shares closed down about 1% at $20.81 on Thursday. Their 52-week range is $7.09 to $25.23. With a price target of $20.70, shares are roughly fully valued but remain about 17.5% below the 52-week high. Based on expected 2021 earnings, the stock trades at a multiple of 34.1, the highest of any stock in this group. Evoqua does not pay a dividend.

SJW

While SJW Group (NYSE: SJW) provides water and water services throughout the United States, its main area of operations is around San Jose, California, where the company serves 231,000 customers. Including all its owned and operated water services, the company serves some 1.5 million customers in the United States. SJW’s market cap is about $1.95 billion.

The stock closed Thursday at $68.64, up about 0.2%, in a 52-week range of $45.60 to $74.99. With a price target of $72.40, shares have a potential upside of 5.5% and trade at 8.65% below the 52-week high. Based on expected 2021 earnings, the stock trades at a multiple of about 28. The dividend yield on the stock is 1.93%.

Forterra

Forterra Inc. (NASDAQ: FRTA) manufactures and sells pipe and precast products used in drainage and water supply projects to customers in North America. The company’s market cap was right around $1 billion (before Thursday’s drop) and around 80% of the stock is held by institutional investors. The consensus full-year earnings per share estimate has risen by $0.80 per share in the past three months and more than doubled in the past month.

Shares closed at $14.94 on Thursday, down 3.7% for the day, in a 52-week range of $3.45 to $15.97. With a price target of $16.00, the stock’s implied gain is about 5.8%, and shares trade about 6.5% below the 52-week high. But the company’s longer term value is just 14 times expected 2021 earnings, suggesting that a serious adjustment to either the share price or the estimates is due. Forterra does not pay a dividend.

The needed spending on water does not end here. In addition to upgrading the country’s water systems, the federal government also may be called up to close a funding gap of $39.4 billion between an estimated $45 billion needed to repair aging dams and just $5.6 billion currently available for the purpose. Strictly speaking, fixing America’s 15,500 high-hazard dams will be infrastructure construction projects.

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