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California Water Service Subsidiary to Acquire Monterey Water Company
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California Water Service Subsidiary to Acquire Monterey Water Company

New Mexico Water Service is a water utility company based in New Mexico, and a subsidiary of water utility and associated services provider California Water Service Group (CWT). New Mexico has agreed to acquire the assets of Monterey Water Company.

Under the agreement, New Mexico Water will own and operate the water system catering to 380 customers. The transaction also includes ~100 undeveloped lots that can be catered to in the future. Notably, New Mexico Water’s Rio Del Oro water system is less than half a mile away from the Monterey Water service area, which will come under the Rio Del Oro area.

Management Weighs In

The President and CEO of New Mexico Water, Martin A. Kropelnicki, commented, “We appreciate Monterey Water’s confidence in our team and look forward to working together and receiving Commission review to complete the acquisition. We also look forward to welcoming Monterey Water customers to our family and providing them the same quality, service, and value that we provide to all of our customers in the Land of Enchantment.”

New Mexico Water presently caters to ~16,000 people, providing services including, meter reading, water quality testing, water and wastewater treatment, water system design and construction, as well as customer service.

Analysts’ Take

Recently, Robert W. Baird analyst Ben Kalio reiterated a Buy rating on the stock alongside a price target of $65.

Overall, the Street has a Hold consensus rating on the stock based on a Buy, Hold, and Sell each. The average California Water Service price target of $61 implies a potential upside of 5.8% for the stock. 

Valuation Speaks

Let us consider some of the key metrics for CWT and how it fares against the broader industry.

The company has an earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 31.7%, which lags the industry median of 33.9%, indicating the company has scope to optimize its costs. Notably, the company generates $85,550 in net income per employee, which compares favorably with the median industry figure of $86,090.

Further, the forward non-GAAP P/E multiple for CWT is at 29.9, while the median figure for the industry is 19.46, indicating the company’s current share price level is on the expensive side versus its industry peers.

On the other hand, a dividend yield of 1.6% means investors can get a better yield from CWT’s peers as the median industry yield is 3.13%. Shares are down 19.8% so far this year.

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