Critical Comparison: American Water Works (AWK) vs. Connecticut Water Service (NASDAQ:CTWS)

Connecticut Water Service (NASDAQ: CTWS) and American Water Works (NYSE:AWK) are both utilities companies, but which is the superior investment? We will contrast the two companies based on the strength of their valuation, dividends, profitabiliy, risk, earnings, analyst recommendations and institutional ownership.

Insider & Institutional Ownership

45.6% of Connecticut Water Service shares are owned by institutional investors. Comparatively, 81.1% of American Water Works shares are owned by institutional investors. 2.5% of Connecticut Water Service shares are owned by insiders. Comparatively, 0.3% of American Water Works shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares Connecticut Water Service and American Water Works’ revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Connecticut Water Service $99.58 million 6.55 $43.18 million $2.16 26.11
American Water Works $3.33 billion 4.35 $1.66 billion $2.65 30.68

American Water Works has higher revenue and earnings than Connecticut Water Service. Connecticut Water Service is trading at a lower price-to-earnings ratio than American Water Works, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Connecticut Water Service and American Water Works’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Connecticut Water Service 23.22% 10.13% 3.09%
American Water Works 14.20% 9.70% 2.77%

Dividends

Connecticut Water Service pays an annual dividend of $1.19 per share and has a dividend yield of 2.1%. American Water Works pays an annual dividend of $1.66 per share and has a dividend yield of 2.0%. Connecticut Water Service pays out 55.1% of its earnings in the form of a dividend. American Water Works pays out 62.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Connecticut Water Service has increased its dividend for 47 consecutive years and American Water Works has increased its dividend for 8 consecutive years. Connecticut Water Service is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Connecticut Water Service and American Water Works, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Connecticut Water Service 0 1 0 0 2.00
American Water Works 0 4 4 0 2.50

Connecticut Water Service currently has a consensus target price of $52.00, indicating a potential downside of 7.80%. American Water Works has a consensus target price of $81.67, indicating a potential upside of 0.44%. Given American Water Works’ stronger consensus rating and higher probable upside, analysts clearly believe American Water Works is more favorable than Connecticut Water Service.

Risk & Volatility

Connecticut Water Service has a beta of 0.09, suggesting that its stock price is 91% less volatile than the S&P 500. Comparatively, American Water Works has a beta of 0.25, suggesting that its stock price is 75% less volatile than the S&P 500.

Summary

American Water Works beats Connecticut Water Service on 9 of the 17 factors compared between the two stocks.

Connecticut Water Service Company Profile

Connecticut Water Service, Inc. is a non-operating holding company. The Company’s income is derived from the earnings of its subsidiary companies, including The Connecticut Water Company (Connecticut Water), The Maine Water Company (Maine Water), New England Water Utility Services, Inc. (NEWUS),The Avon Water Company (AWC) and Chester Realty Company (Chester Realty). It operates through three segments: Water Operations, Real Estate Transactions, and Services and Rentals. The Water Activities segment consists of its regulated water activities to supply public drinking water to customers. The Real Estate Transactions segment involves the sale or donation for income tax benefits of its real estate holdings. Services and Rentals segment provides contracted services to water and wastewater utilities and other clients, and also leases certain of the Company’s properties to third parties through unregulated companies in the State of Connecticut and through Maine Water in the State of Maine.

American Water Works Company Profile

American Water Works Company, Inc. is a holding company for regulated and market-based subsidiaries throughout the United States and Ontario, Canada. The Company’s Regulated Businesses segment provides water and wastewater services as public utilities in 16 states in the United States as of December 31, 2016. The Market-Based Businesses consists of four segments, including Military Services Group, which conducts operation and maintenance (O&M) of water and wastewater systems for military bases; Contract Operations Group, which conducts O&M of water and wastewater facilities for municipalities and the food and beverage industry; Homeowner Services Group, which primarily provides water and sewer line protection plans for homeowners, and Keystone, which provides water services for natural gas exploration and production companies. The Company, through its subsidiary, American Water Works Service Company, Inc. provides support and operational services for its operating subsidiaries.

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