Middlesex Water Faces Valuation Pressure: Analyst Flags Slowing Growth And Rising Regulatory Risks

Core Viewpoint - BofA Securities analyst Ross Fowler initiated coverage on Middlesex Water Company (MSEX) with an Underperform rating and a price forecast of $56, highlighting that it is the most expensive utility in their coverage, trading at a 47% premium to the utility group and a 13% premium to the water group [1][2]. Financial Projections - The analyst projects that Middlesex Water's EPS will grow at a 5.2% CAGR from 2024 to 2027, with estimates of$ 2.34 in 2024, $2.45 in 2025,$ 2.59 in 2026, and $2.72 in 2027 [3]. - Capital expenditures are expected to exceed guidance due to a national push for water quality investment, resulting in a 7.6% annual rate base growth through 2027, although this is slower than the recent 15% rate base growth driven by one-time water quality investments [3][4]. Growth and Challenges - Middlesex Water expects 4% customer growth in 2024, but economic conditions may pose challenges to achieving this growth, leading the analyst to adjust the growth assumption to 3% in their model [5][6]. - The focus on limiting water customer bill increases may restrict further upside for Middlesex Water, especially as the company relies more on frequent rate cases [4]. Capital Needs - The company may need to raise external equity starting in 2025, forecasting$ 25 million per year to bring its equity capitalization closer to authorized levels [4]. Market Performance - MSEX shares are currently trading lower by 1.66% to $60.31 [7].