"At $27, WTR would trade ~20x our 2017E EPS which we view as fair value given peer multiples, and more importantly, just sector-average growth prospects over next few years. Our target multiple falls from ~22x," analyst Spencer Joyce wrote in a note.
Apart from projecting further declines in ROE, Joyce expects the company to report a third consecutive year of sub-5 percent EPS growth in 2016 (and a 4th in 2017), "which is even below higher-end stories we target in the slower growth gas and electric utility industries."
However, the analyst's FY 2016/2017 EPS estimates for the water and waste water utility holding company remain unchanged at $1.31/$1.35, respectively.
"We currently suggest an Underweight allocation to each Utility sector vertical (water, gas, electric), and recommend investors consolidate positions into ideas with a strong growth component. We still view WTR as one of the more at-risk stocks in the sector, and support rotating out of positions," Joyce added.
Shares of Aqua America closed Tuesday's regular trading at $29.73 and were up 0.71 percent Wednesday at time of writing, trading at $29.94.
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