Are Water Utilities Really a Smart Long-Term Investment?
US water utilities: the bottom line
The active rally in water utility companies seems precarious at this point in 2016—especially in light of the imminent interest rate hike. Although water utility companies have been offering stable earnings and dividend growth over the years, their yields remain half that of US electric utilities.
Water giant American Water Works, however, stands out among its water utility peers (CGW), particularly given its earnings and dividend growth. Regulatory policies and technological advancements are expected to be major drivers of water utilities for the next several years.
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On November 9, 2016, Bank of America Merrill Lynch upgraded American Water Works from “neutral” to “buy.” It’s one year price has also been raised to $84 from $77.
According to Wall Street analyst estimates, American Water Works (AWK) has a median price target of $81.67, as compared to its current market price of $72.42. This target implies an estimated upside of nearly 13% in one year.
Of the 18 analysts tracking American Water Works, eight analysts gave it a “buy” recommendation and ten analysts gave it a “hold” recommendation. None of the analysts has given it a “sell” recommendation as of November 14, 2016.
Aqua America (WTR) has the potential to rise by 15% during the next year. It has a consensus target price of $34.10, as compared to its current price of $29.80.
By comparison, American States Water (AWR) has a consensus price target of $40.67, as compared to its current market price of $39.80. This target implies a potential upside of nearly 2.2% in one year.
California Water (CWT) has a consensus price target of $31.50 for the next year, implying a gain of 1%. CWT was trading at $31.25 as of November 11, 2016.