Bullish on Connecticut Water

On Dec 25, 2013, Zacks Investment Research upgraded Connecticut Water Service Inc. (CTWS) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Connecticut Water Service reported positive earnings surprises in 3 out of the past 4 quarters with an earnings beat of 7.9%. In the third quarter of 2013, the company reported earnings of 86 cents per share, beating the Zacks Consensus Estimate by 24.6%. Quarterly earnings were 28.3% higher than the year-ago figure, primarily on the back of solid performance from its Water Activities segment.

In Jul 2013, Connecticut Water Service received approval for the two-year rate reduction and introduction of the Revenue Adjustment Mechanism (“RAM”). The company will implement these initiatives from Apr 2014. The company believes these initiatives will help retain existing customers.

In Nov 2013, the company announced its 2014 capital expenditure guidance of $45.6 million, up 45.7% from the 2013 capital spending projection. These figures suggest that Connecticut Water Service continues to increase its capital expenditure.

We believe that the continuous rise in capital spending is geared towards improving the water utility’s infrastructure. The addition of new assets as well as the replacement of ageing infrastructure will help Connecticut Water Service to provide reliable services.

True to the defensive nature of all utilities, Connecticut Water Service also has a steady dividend payment record. The company has increased the annual dividend rate in each of the last 44 years. We believe the company’s practice of returning wealth to shareholders will keep alive investor interest in the stock.

Other Stocks to Consider

Some other stocks worth considering in the water utility sector include Middlesex Water Co. (MSEX), American Water Works Company, Inc. (AWK) and California Water Service Group (CWT). While Middlesex Water holds a Zacks Rank #1 (Strong Buy), American Water Works Company and California Water Service carry a Zacks Rank #2 (Buy).

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