An International Equity holding: Rio Tinto (RIO-US $67.25): “Iron Ore Plus More” By: Sam Shibilski, AIM Student at Marquette University

 

Rio Tinto (RIO-US $67.25): “Iron Ore Plus More”

By: Sam Shibilski, AIM Student at Marquette University

 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

• Rio Tinto (NYSE:RIO-US) is a longstanding Australian metal mining company which specializes on the finding, mining, and processing of metal and mineral resources. Its primary revenue segments are Iron Ore Mining (57.29%), Non-Ferrous Metal Ore Mining (21.15%), Alumina and Aluminum Products Manufacturing (17.37), Diamond Mining (1.36%), and Other (2.83%). Its primary customer bases are Mainland China (49.7%), US (14.2), and Japan (8.9).
• China has reduced steel production in an effect to lower their carbon production. However, they are supplementing their production with an increased steel imports.
• China and Australia trade disputes have continued from 2020 into 2021 and although Australian iron ore has not been tariffed the threat continues to exist however small.
• Rio Tinto enters the battery minerals market at a material scale through their new mine in Jadar, Serbia with expected operations opening in 2026.

Key Points:

China plays a significant factor in the global steel market in addition to their relationship with RIO, making up over 50% of the global steel usage in 2019 and historically 60% of the iron has come from Australia (World Steel). Since May 2020, China have banned and tariffed Australian products because of China’s accusation that Australia has been hostile in relation to Covid-19 questioning and foreign investment. These bans have been far reaching, however Australian global exports have continued to rise through this pressure and most notably left out of the bans is Australia’s coveted iron ore (Bloomberg). Due to China’s dependency on Australian iron, it is not in their best interest to place tariffs on it. However, China is more willing to purchases non-Australian iron such as Brazilian iron from Vale. This transition from Australian to Brazilian ore, however possible on paper would take a tremendous Chinese supply chain shift to move away from the ocean liner that is Australian ore, again 60% of China’s total imported iron ore.

Simultaneously, China has intentions of achieving state carbon neutrality by 2060. One of the initiatives has been to begin a shift away from carbon-based steel production. As such the EAF (electronic arc furnaces) industry, an alternative to carbon steel production, is expected to increase from its 15% Chinese market cap in the coming decades. Additionally in a more immediate response, China has increased its imports of pre-made steel, thus the carbon expensive process of smelting iron ore into steel originates and is attributed to the producing country and not China. This increase in Chinese steel imports will decrease its need for iron ore, however the global demand will remain constant with other producers increasing iron ore exports to China. This will also be a lengthy shift because China currently produces about 50% of the world’s steel. Furthermore, RIO needs to extend their relations with other top steel producing countries such as India, Japan, US, and Russia early in order to remain a leader in the iron ore industry.

It is not just China that is pushing better carbon based ESG, but the world. RIO’s Board sees this as a driver for their major revenue streams – iron ore, copper, and aluminum – and has expedited their entry into the battery minerals business. With the funding of $2.4 billion being approved in late July a mine in Jadar, Serbia is set to begin building in 2022, with live operations in 2026. This expansion is RIO’s first material move into this business; a core battery mineral, lithium, demand is expected to grow at a CAGR of 25% to 35% over the next decade. Through Jadar’s scale it is expected to be able to power over a million electric vehicles (EV) per year. This expansion will provide new customers not just for RIO’s lithium but also for their longstanding products through the need for iron, copper, and aluminum in wind turbines, EV, solar cells, and transmission lines.

What has the stock done lately?

Since mid-May 2021, when the stock peaked, RIO has seen a steady decline from $94.65 to $67.25. This near 29% decrease in value is directly correlated with the decline of iron ore price. As seen in the ore monthly prices from FRED iron has decreased 24.37% since June and it is suspected to have fallen more intra-month May data was available.

Past Year Performance

Over the past year RIO has seen a 11.90% increase in stock price, however two common benchmarks iShares MSCI ACWI ex-US and iShares Global Materials have outperformed RIO posting gains of 25.15% and 26.83% respectively. When looking at RIO and its iron ore peers, they are trading at historically low PE values; RIO currently at 5.79 with a 5Yr average of 11.3 and Vale currently at 4.39 with a 5Yr average of 11.9 (excluding 2019 for Vale). Additionally, RIO has committed a $9.1 billion dividend payout from and EBITDA of $12.8 billion.

Source: FactSet

My Takeaway

Rio Tinto alongside other iron miners are trading at a PE discount because their stock price fall has been overshot and exaggerated with respect to the recent decreases in iron ore prices. China has influenced the iron ore price as they have decreased, they production of steel in line with their ESG and recent increases in regulation. The overall steel demand looks to stabilize as China increases their steel imports. As for China and Australia relations, although China has tried to clamp down on many of their imports from Australia iron ore has not and likely will not be touched unless either nation acts very directly and aggressively against the other because both countries heavily depend on their iron relationship. Furthermore, with RIO’s investment into a new business segment, battery minerals, they are providing diversity to their business model, creating new customers for their entire business, and are showing their ability to move with the times. Furthermore, Jadar is just opening the door into the battery minerals market, a market they wish to further explore in the years to come with the continued boom of the EV market.

Source: FactSet

A Small Cap Equity holding: Supernus Pharmaceuticals, Inc. (SUPN, $27.10): “Super Potential with Supernus” By: Mitch Kamm, AIM Student at Marquette University

 

Supernus Pharmaceuticals, Inc. (SUPN, $27.10): “Super Potential with Supernus”

By: Mitch Kamm, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

• Supernus Pharmaceuticals, Inc. (NASDAQ:SUPN) is a pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. The company currently offers Qelbree, Trokendi XR, Oxtellar XR, Apokyn, Xadago, and Myobloc products. Supernus has a market cap of 1,513 million and is headquartered in Rockville, MD.
• Supernus recently received great news as its Qelbree (SPN-812) drug offering. This offering was delayed due to an FDA investigation into Supernus’ decision to relocate their production facility. This win is twofold as it allows Qelbree, a first of its kind offering, to hit the market and paved the way for SPN-830’s NDA filing on September 14^th.
• It is believed that SPN-830 could be Supernus’ most successful offering when it receives FDA approval. SPN-830 is an apomorphine continuous subcutaneous infusion pump to treat hypomobility in adults with Parkinson’s Disease (PD). Supernus was slated to release the drug in 4Q20 but needed to do more testing on the distribution device of the product and just recently filed with the NDA.
• Supernus has remained relatively flat since being added into the portfolio in February 2020. Momentum is finally starting to turn for the company with Qelbree’s approval and optimism surrounding SPN-830. Both of these offerings can be big drivers for the firm and patience is needed to see if they can pan out.

Key points:

The recent approval of Qelbree was a big win for Supernus as it will hopefully show that the FDA’s concerns with their production relocation are all but settled. Qelbree is a first of its kind extended release capsule for the treatment of attention-deficit disorder (ADHD) in 6-17 year old patients. Qelbree is unique in that it is non-stimulant, administered once a day and the side effects are less severe than the current offerings. Only 10% of the current market for ADHD medication is made up of non-stimulants giving Supernus a big opportunity. Despite being launched early this year, Qelbree is already accessible for prescription to 60% of pediatric patients with ADHD. Assuming the firm can prove the drug’s efficacy in treating the disease while eliminating the side effects of insomnia, addiction, drug abuse and loss of appetite can make this a big winner.

Management’s focus on getting SPN-830 to a full launch took a big step on September 14^th. The drug is used for the continuous treatment of ON-OFF episodes in adults with Parkinson’s disease SPN-830 would allow for a less invasive and a convenient option in the form of a continuous subcutaneous infusion of apomorphine. Current offerings require infusion of a gastric tube or surgery such as a deep brain stimulation. This less invasive surgery would be much easier to administer, and management believes this offering could reach ~600M in sales per year once it is fully adopted by the market.

 

Going forward, patience is necessary to see what happens. The outlook for Supernus is likely to be a boom or bust. The firm currently has two more offerings in their pipeline. SPN-820 is in phase 1 trials for various treatments of depression. SPN-817 is also undergoing phase 1 trials for the treatment of severe epilepsy. Qelbree and SPN-830 could be big winners for the firm but if they do not pan out then near-term the outlook appears rather bleak. Supernus needs either or both drugs to take off and give revenues the shot in the arm that is needed. Given the potential for growth within the company it is recommended that Supernus Pharmaceuticals, Inc. continued to be held by the AIM Small Cap portfolio.

What has the stock done lately?

Supernus’ 1-month performance is up 2.61% to $27.10 and its performance over the last six months has been up 5.65%. Since the AIM Equity Fund purchased shares of Supernus at $29.42 in February 2020, the stock has decreased 7.1% in value.

Past Year Performance: Over the last year, Supernus has seen a 29.91% increase compared to the Russell 2000 Index benchmark return of 48.18%. 2021 year to date, Supernus has returned a 7.8% return miss the Russell 2000 benchmark of 14.59%.

Source: FactSet

My Takeaway

The future for Supernus could lead to superior growth and strong returns for the stock. Depending on how Qelbree and SPN-830 turn out, the company could see monumental increases in revenues which have been inconsistent year over year. Management has a proven track record of getting successful drugs onto the market and I am optimistic these and future offerings will have the same luck. Supernus has not been a winner for the portfolio so far but I think it is too early to give up. In the pharmaceutical space you oftentimes need just one big win to make an investment more than worth it. I think that big win might be coming soon in this case. Given that the investment thesis is still intact I think we need to wait and see what happens. I recommended that we continue to hold and monitor SUPN throughout their upcoming developments.

 

 

 

A Small Cap Equity holding: PJT Partners, Inc. (PJT, $77.34): “PJT Still Placing the Right Funds” By: Christian Wilber, AIM Student at Marquette University

  

PJT Partners, Inc. (PJT, $77.34): “PJT Still Placing the Right Funds”

By: Christian Wilber, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

• PJT Partners, Inc. (NYSE:PJT) is a boutique investment bank that offers advising services (84% of revenue) across M&A transactions, equity capital markets, and restructuring. The Park Hill division acts as a placement advisor that connects investors to alternative assets (16%).
• For Q2 2021 PJT reported an EPS of $1.06, beating a $0.98 consensus while increasing 6% y/y.  
• Management exudes value in their shares with 2.3M repurchased in the first half of the year. Additionally, a $3 special dividend leads the way for forthcoming capital returns.  
• A strong earnings landscape is driving M&A volume to record levels for pre-pipeline mandate while the low interest environment continues to encourage alternative fund placement.
• While record M&A revenue was slightly offset by restructuring headwinds, this was largely expected and offers an opportunity to shift focus on more profitable drivers.  

Key points: On July 29, PJT reported a Q2 EPS of $1.06 a share against a consensus of $0.98. Revenue beat consensus at $241M and grew 3.5% y/y against a tough 2020 comp. Q2 net income rose 6.9% Y/Y to $23M.  

Despite revenue growth of 214% since 2016, fully diluted share count now remains the same after 5 years. 2.3M shares have been repurchased in the first half of the year and management has displayed confidence that they see compelling value in their price. Besides continued investment, they are committing free cash to capital returns. A $3 special dividend was announced to be paid October 18, with the 2021 yield now likely to be 4.1%.

Fiscal and monetary stimulus throughout the pandemic have created a strong tailwind for PJT’s advisory services. Corporate earnings are at records levels and M&A markets continue to grow among all deal buckets. PJT’s Q2 M&A revenue was the highest in firm history. Additionally, low interest rates are unlikely to taper in the near future. This continues to drive higher AUM volume through the Park Hill Fund placement service that has already increased 14% y/y in Q2.  

Compared to 47% revenue growth in 2020, the first half of this year has seen consolidation of firmwide revenue. This was largely baked into the consensus as restructuring headwinds have offset other offerings to an extent but have had no impact to the bottom line. During the recent investor day, management has stated that growth is now focused on Fund Placement and M&A, while restructuring is set to receive less focus.

What has the stock done lately?

After releasing Q2 2021 earnings above consensus, shares rose 2.5% to reach $77.83 while the benchmark rose 0.6% for the day. Since then, the price ran all the way up to a near high of $80.80 by the end of August. They dropped back to $77.34, due in part to a recent spike in the 10-year treasury yield. PJT still trades well above its 52-week low of $59.48 established in April.

Past Year Performance:

Over the past year, PJT share prices have increased 33.2% while the Dow Jones Financial Services Index rose 56.5%. Meanwhile, the benchmark Russell 2000 rose 51.1% over the same period.

Source: FactSet

My Takeaway

PJT was added to the AIM Small Cap Fund in March of 2021 under the thesis that an impressive advisory pipeline, growing fund placement service, and world class restructuring service would be significant drivers in the firm’s immaculate growth story. While restructuring has seen recent headwinds, management sees fallout from the pandemic returning activity in 2022. PJT still trades at 14.8x PE compared to the subgroup’s 17.5x, and its growth trajectory with record M&A and fund placement revenues could easily afford 19x. Analysts see the firm growing at the upper bound of peers, and the CEO stated that growth in recent years is only a prelude of what’s to come. This is not only supported by growth in the industry, but recent talent acquisition efforts that have driven consistent market share expansion. It is recommended that the Small Cap Fund hold PJT as tailwinds are forming that could lead to growth well above the subgroup for years to come.  

Source: FactSet

Holden Patterson-SSE PLC (SSEZY) AIM Equity Presentation

 

A Small Cap Equity holding: Teladoc Health, Inc. (TDOC $142.98) “TelaHold” By: Adam Webb, AIM Student at Marquette University

 

Teladoc Health, Inc. (TDOC $142.98) “TelaHold”

By: Adam Webb, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

• Teladoc Health, Inc. (NYSE: TDOC) is a leading provider of telehealth assistance. TDOC covers numerous medical needs and is in the process of  growing its treatable conditions. This has allowed TDOC to consistently increase its client visits every year represented by 16.4% this year compared to prior.
• As Covid-19 becomes less prevalent in society, Teladoc is losing its tailwinds that resulted from lockdowns and the virtual world. However, it is exposed to an increased total addressable market relative to before the pandemic as well as vast expansions in its mental health operations and a change to a value based care revenue model.
• As the Livingo business has become engrained in Teladoc’s operations, the company has been able to differentiate itself from its formattable opponents like the Google backed Amwell, and Amazons attempt telemedicine Amazon Care.
• TDOC has a healthy balance sheet and will be able to cover its expenses for the foreseeable future allowing the company to continue to pursue the strategic goals and disruption that were stated when the company was pitched in 2019.

Key Points

A study by Mckinsey & Co. suggests that after reopening, telehealth is used more than prior to the pandemic at a multiple 38x, and is likely to stay at that level. Qualitatively, we are seeing the stay-at-home renaissance in the workplace, so should we expect to see that in the healthcare industry aswell? Logic says that if one is not keen on commuting to work every day, that person will not have a desire to meet with their health care provider in person for things that can be taken care of virtually. Surveys conducted on physicians claim they also are now more keen on telehealth than prior to the pandemic. Prior to the pandemic 11% claimed they would practice medicine virtually, now 40% claim they will.

TDOC saw the opportunities for its virtual services when the pandemic came about. The company increased its Marketing expense by 106%, its Selling expense by 137%, and its R&D expense by 155%. This resulted in an explosion in brand awareness as according to Google Trends, the company generates on average double the amount of interest as before the pandemic. In addition, the digital renaissance has forced people to gain competence in virtual meetings and the internet. In particular, the highest spending health care clientele elderly people. The demographic with the lease experience to the internet, post pandemic has had the opportunities to gain the ability to become proficient in internet use and virtual meetings. Such a phenomena may be responsible for TDOC’s continued revenue growth even as lockdowns and Covid-19 infections taper.

Numerous competitors have entered the telemedicine sector like Amwell, Google Health, and Amazon Care. Of these competitors, Google Health recently shut down, and Amazon Care is yet to make a meaningful market impact. Amwell remains the only formattable competitor but has lagged TDOC. TDOC’s revenue has grown by 120% year over year while Amwell decreased by 12% year over year with visits going down from 1.6 mil to 1.3 mil quarter over quarter. Not only has TDOC become the choice company among consumers, but businesses as well. It recently gained a use contract with HCSC, the fifth largest health insurance company in the US. As the Livongo merger settles in, we have understood more about the rationale of the acquisition. The Livongo merger allows TDOC to conduct whole person care delivery, and switch from a fee-for-service revenue model to value based care revenue model.

The disruptive thesis that was pitched in 2019 is still much in play. Of the many areas that Teladoc could continue to disrupt, mental health is becoming a prime candidate. Mental Health has become one of the most dynamic and most talked about areas of healthcare as stigmas against it continue to be disproven. It is estimated that one in five people struggle with their mental health. In addition, 56% of counties in the US don’t have a psychiatrist, 64% of counties have a shortage of mental health providers, and 70% of counties lack child psychiatrist. TDOC hopes to be the answer to this under cared for space.

What has the stock done lately?

Teladoc has fallen from $165.29 to $138.867 (-15.38%) since July 1^st. Its downward trend has returned -9.81% against the Russel 2000 and has been apart of a greater pullback Covid-19 winners are facing. The equity price sits well below its 50-day moving average of $144.98.

Past Year Performance

Teladoc started the past year at a price of $200.77 and rose to its high on February 2^nd 2021 of $286.58 but has fallen down to $143.09 accumulating a -28.71% performance year-to-date. A laggard in comparison to the Russell 2000 benchmark IWM which finished up 47.60%.

Source: FactSet

My takeaway

As people attempt to put Covid-19 behind them, they won’t forget the lessons they learned. Teladoc will come out of the pandemic superior to before. The expansion of addressable markets, domination of competition, and business model will ensure that Teladoc’s disruption will continue into the future and the company will find a path to profitability.

Source: FactSet

 

 

 

An International Equity holding: SolarEdge Technologies Inc. (SEDG, $269.46): “Something to Take the Edge Off” By: Dan Dunn, AIM Student at Marquette University

 

SolarEdge Technologies Inc. (SEDG, $269.46): “Something to Take the Edge Off”

By: Dan Dunn, AIM Student at Marquette University

 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

• SolarEdge Technologies (NYSE:SEDG) develops alternative energy technology through its solar power solutions. Their main inverter segment drives solar revenue from the mainland U.S., Netherlands, Europe, China, and Russia. SEDG is headquartered in Herzliya, Israel.
• SolarEdge has continued to make strides with product penetration. Earnings for Q2 stated a third consecutive quarter of strong growth, with total revenue 18% higher than Q1. European sales reached a new high of just over $200 million, and U.S. pulled in $175.1 million, beating market expectations.
• Non-solar technology continues to develop, with powertrains leading sales numbers on the e-mobility front. The non-solar revenues were $80 million. Storage beginning to be paired with inverter sales for installers.
• Supply chain struggles have been mitigated through SEDG’s multiple store strategy, but takes losses through higher cost logistics at times. Component shortages continue throughout the technology industry, but management dismissed negative impacts on ability to meet increased demand.
• Production in Vietnam was drastically reduced due to COVID impact, leading to necessary increases of production from plants in China, Hungary and Israel. Additional Chinese shipments to the U.S will negatively impact margins until conditions improve.
• Expected bipartisan infrastructure bill can continue to drive stock price as the Biden administration focuses on cleaner energy and reduction of carbon outputs, as well as an expected emphasis on EV expansion.

Key points: SolarEdge continues to rapidly grow sales, both in Europe and in the U.S. Strong Q3 numbers and confident management adjusts revenues guidance for Q3 to $520-540 million, with the solar segment between $460-480 million. Margins are expected to be within 32-34%. While the company has confidence that they stay a leader in market share, management has difficulty identifying hard evidence in a rapidly growing environment. Ultimately, faith has been put in installers (customers) that will continue to sell the products to residential and commercial buyers. Continued exposure to these installers is expected to help lateral product penetration.

After a fairly aggressive 2019, acquisitions have cooled off as SEDG builds its product portfolio to support its inverters. Storage and EV support have become a research focus, as well as the continued integration of their software application to monitor solar inverters. As global markets continue to expand for energy storage, any continued growth in this segment will drive investor confidence.

SEDG recently added a new chief of marketing, as well as new CEO for their Kokam subsidiary. Yogev Barak takes over as marketing head, after a 25-year career with executive positions for HP and Applied Materials. SehWoong Jeong takes over for Kokam after leading the Automotive Batteries and ESS for Samsung SDI.

Risks continue to surround the company’s customer base, with 2 customers making up more than 10% of revenue from the U.S., and the top ten clients providing more than 60% of total revenue. Competition could become a real danger here, as the demand for solar energy support will continue to grow.

What has the stock done lately?

The stock has stabilized a bit in the last few months compared to the incredible run over the previous few years. The stock is down over 17% YTD after hitting a markable high of $371 in January. This was followed by a substantial sell-off, and the price has settled between $270 and $290 for much of the year.  

Past Year Performance: SEDG is still considered undervalued by the market, with the majority of price targets close to $330. High volume numbers have driven a volatile few years, and there is little surprise to see a sell off after the all-time high of $370.

Source: FactSet

My Takeaway

SolarEdge will benefit greatly from the passing of the infrastructure bill, as renewable energies are prioritized, and expansion becomes further subsidized. The demand for residential solar backups should continue to grow, especially when improving technology combines with the stressors that grid systems will have to manage during the EV revolution. Fears of attempting innovation too far outside SEDG’s comfort zone with their non-solar segment may deter investors if they continue to finish in the red. Revenues should see massive increases as solar technology becomes mainstream over the next 5 years. The AIM International Equity Fund should continue to hold its larger position at the very least through the final stages of the infrastructure bill.

Source: FactSet

A Small Cap Equity holding: Middlesex Water Company (MSEX, $105.74): “Wastewater is the New Gold” By: Logan Kreinz, AIM Student at Marquette University

Middlesex Water Company (MSEX, $105.74): “Wastewater is the New Gold”

By: Logan Kreinz, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.

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 9^th, 2021, CEO Doll sells 3,000 of Middlesex (MSEX) stock.
• August 30^th, 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.

Source: FactSet

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.

Source: FactSet

Ciara Jones -Magna International (MGA) AIM Equity Presentation