Middlesex Water Company (MSEX, $105.74):
“Wastewater is the New Gold”
By: Logan Kreinz, AIM Student at
Marquette University
Summary
- Middle
Sex Water Company (NYSE: MSEX) owns
and operates regulated water utility and wastewater systems in New Jersey,
Delaware and Pennsylvania. Middlesex services include water production,
treatment, and distribution. It operates through two segments: Regulated (91%
of total revenue) and Non-Regulated (9%). MSEX was founded in 1897 and is
headquartered in Iselin, NJ.
- September 9th, 2021, CEO Doll sells 3,000 of Middlesex (MSEX) stock.
- August 30th, 2021, MSEX announced it has agreed to sell the regulated Delaware wastewater utility business to Artesian Wastewater Management, Inc. for 6.4 million in cash and other considerations. The transaction is subject to approval by Delaware Public Service Commission and is expected to finalize prior to December 31, 2021.
- The company has filed for its first new rate base case since 2017, they are requesting to increase base rates by $31 million.
- Net income growth for 2020 was 13.39%, and the EPS growth for 2020 was 8.41% this growth story for MSEX has been a contributor to the recent rally.
Key
points: MSEX was added to
the portfolio in April of 2021 at around $84 per share and since then has grown
about 26%. The main contributor to this success is the sale of Delaware
wastewater utility business to Artesian for $6.4 million in cash. Another main
contributor to the rally has been the growth story of this small cap utility.
Although utilities are extremely regulated, MSEX continues to have a strong
relationship with its regulators. It has been able to maintain a ROE of 11%
compared to the industry average of 9.8%. Along with that Middlesex is
currently working on a major infrastructure campaign to enhance the safety and
reliability throughout its water systems. They have currently invested over
$190 million dollars over the last two years. They are expecting an additional
$100 million dollars of Capex investments through 2022.
With
the company increasing the capex over the coming years, MSEX decided to file
for a rate adjustment with the New Jersey Board of Public Utilities requesting
an increase of approximately $31 million to its base rates. MSEX is filing for
recovery of investments made to address the aging drinking water
infrastructure. This is the first-rate case filing since October 2017, the
company anticipates the approval of this rate base case because of the strong
relationship with regulators. If the rate case is approved the residential
customer using 15,000 gallons of water per quarter would see their water bill
increase by 67 cents a day.
The
second quarter of 2021 the company reported a consolidated operating revenue of
$36.7 million for Q2, as compared to $35.3 million for the same period in 2020.
The $1.4 million increase is driven from the increase demand from retail water
customers in MSEX service area.
What
has the stock done lately?
Since reporting their
2Q2021 earnings on July 30, MSEX is up 4% to $105.74. The Russell 2000 is down
.1% over the same period. This overperformance comes as investors react to the
news of the sale of the Delaware wastewater business. In addition to the
companies anticipated approval over the new rate base case.
Past
Year Performance: MSEX has
increased 67% in value over the past year, compared to the Russell 2000 which is up 45%
during the same period. MSEX 52-week low is $59.60, and its high is $116.40.
My
Takeaway
Middlesex
water company has been a fun rally to be a part of for the last 8 months,
however, I think now is the perfect time to sell and find a company who has
more upside in the future. The stock has seen tremendous growth over the last
year (67%) and I believe this momentum will start to run out over the next few
months. When this stock was pitched last semester, it had a price target of
$87. It is now trading at 105, and I have MSEX as a sell because we have seen a
strong bull run over the last few months due to the sale of the wastewater
business. I think this is a perfect time to capitalize on this run and take
advantage of this extremely high evaluation.
