MSEX or SJW: Which is a Better Utility Water Supply Stock?

Industry Overview - The Zacks Utility - Water Supply industry includes companies providing drinking water and wastewater services to various customers, including military bases [1] - Water utilities are essential for maintaining a healthy life by ensuring a constant flow of clean water and reliable sanitation services [2] Infrastructure and Investment Needs - Water utility operators manage nearly 2.2 million miles of aging pipelines, necessitating continuous replacement and expansion [3] - An estimated investment of $963 billion is required over the next 20 years to maintain and expand drinking water and wastewater services to meet demand [3] Capital Market Dynamics - Utilities are seeking loans from capital markets to modernize and expand operations, benefiting from a cumulative 75 basis points reduction in the Fed's fund rate since September 2024 [4] - A further rate decline is anticipated in December 2024, which could enhance the profitability of capital-intensive utilities by lowering capital servicing costs [4] Company Comparisons - Middlesex Water Company (MSEX) has a market capitalization of$1.06 billion, while SJW Group (SJW) has $1.81 billion [6] - The Zacks Consensus Estimate for MSEX's 2024 earnings is$2.34 per share on revenues of $186 million, indicating a 33$2.75 per share on revenues of $715.2 million, reflecting a 2.6% increase in earnings and a 6.7% increase in revenues year-over-year [7] Stock Performance - Over the past six months, MSEX shares have gained 16.9%, while SJW shares have increased by 4.1%, with the industry also growing by 4.1% [8] Financial Metrics - Middlesex Water has a debt-to-capital ratio of 44.79%, and SJW Group has a ratio of 57.1%, both lower than the sector average of 59.34% [9] - The times interest earned (TIE) ratio for MSEX is 4.3, while SJW's TIE is 2.4, indicating both companies have sufficient financial flexibility to meet near-term interest obligations [10] Dividend Yield - Middlesex Water's current dividend yield is 2.29%, while SJW Group's yield is 2.95%, compared to the Zacks S&P 500 composite average of 1.18% [11] Conclusion - Both Middlesex Water and SJW Group are strong candidates for investment, focusing on water and wastewater services with potential for further improvement. However, MSEX is preferred due to its superior earnings, revenue growth, debt management, and stock performance compared to SJW [12]