On Wednesday, BofA Securities began coverage on Middlesex Water (NASDAQ:MSEX), assigning an Underperform rating to the stock with a price target of $56.00. The firm's analysis suggests that Middlesex Water is currently the most expensive utility stock within their coverage, trading at a 23.9x projected 2026 price-to-earnings (P/E) ratio.
According to InvestingPro data, the stock currently trades at a P/E of 26.61x and is slightly overvalued based on its Fair Value assessment. This valuation represents a 47% premium compared to the utility group average and a 13% premium relative to the water group.
The report by BofA Securities points out that Middlesex Water's rate base and earnings per share (EPS) growth are expected to fall below the average of its peers. The analysts argue that the company's current market valuation does not align with these growth projections. InvestingPro data shows revenue growth of 10.14% over the last twelve months, with the company maintaining an impressive 21-year streak of dividend increases.
Subscribers can access 3 additional ProTips and comprehensive growth metrics on the platform. The firm also highlights potential regulatory risks due to an increase in the frequency of rate case filings, which could lead to greater uncertainty around the company's capital expenditure (capex) deployments.
Despite acknowledging Middlesex Water's impressive growth in recent years, BofA Securities remains cautious. The firm has modeled capex at 20% above the company's guidance, which is a more aggressive assumption. Even with this higher level of expected investment, the analysts do not foresee any immediate catalyst that would propel the stock's performance in the near term. The $1.1 billion market cap utility maintains a solid gross profit margin of 52.7%, though its current ratio of 0.65 indicates potential liquidity challenges.
The initiation of coverage by BofA Securities with an Underperform rating and a $56 price target reflects a cautious stance on Middlesex Water's stock, based on the firm's analysis of the company's valuation, growth prospects, and potential regulatory challenges.
In other recent news, Middlesex Water Company (NASDAQ:MSEX) has announced a series of significant developments.
The company declared a 4.62% increase in its quarterly cash dividend to $0.34 per share, continuing its 52-year streak of dividend growth. Middlesex Water also revealed changes to its executive compensation agreements, including new Change in Control Agreements for several top executives effective from January 1, 2025. These agreements provide for severance benefits in the event of employment termination following a change in control of the company.
In terms of executive changes, the company appointed Gregory Sorensen as its new Vice President and Chief Operating Officer, and Mohammed G. Zerhouni as Senior Vice President, Chief Financial Officer, and Treasurer. Additionally, G. Christian Andreasen, Jr., is set to retire as Vice President of Enterprise Engineering and President of Pinelands Water and Wastewater Companies on January 31, 2025, closing a notable 42-year tenure with the company.
Baird has downgraded Middlesex Water's stock to Neutral from Outperform, following the company's recent quarterly filing that did not include its anticipated capital expenditure outlook. On the environmental front, Tidewater (NYSE:TDW) Utilities, a subsidiary of Middlesex Water, is preparing to comply with the forthcoming United States Environmental Protection Agency's drinking water standard for specific PFAS compounds.
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