BofA raises SJW stock rating, trims price target to $55 from $59

On Monday, BofA Securities analyst Ross Fowler upgraded SJW Corp (NYSE:SJW). (NASDAQ:SJW) stock rating from Neutral to Buy, while lowering the price target to $55 from $59. With a current market capitalization of $1.67 billion and trading at $50.23, InvestingPro analysis indicates the stock is fairly valued, with a P/E ratio of 18.1x. Fowler’s assessment is based on SJW’s long-term earnings per share (EPS) growth rate projection of 5%-7%, which is considered conservative and achievable when compared to its peers. This growth rate is expected to maintain through 2025 and 2026, providing confidence in the company’s long-term performance. Supporting this outlook, InvestingPro data reveals the company has maintained dividend payments for 54 consecutive years and raised dividends for 32 straight years, demonstrating consistent financial stability. For deeper insights into SJW’s financial metrics and growth potential, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Fowler noted that SJW’s balance sheet, previously seen as a weakness, has room to maneuver with funds from operations (FFO) to debt ratios above downgrade thresholds and a strong consolidated equity capitalization exceeding 40%. Recent financial data shows revenue growth of 7.7% in the last twelve months, though InvestingPro analysis indicates the company operates with significant debt burden, with total debt to capital ratio at 52%.

The analyst acknowledged that SJW’s growth rate does not match that of American Water (NYSE:AWK), which forecasts a 7%-9% increase. However, the more modest expectations for SJW take into account conservative regulatory outcomes and the non-linear nature of its earnings growth, which may contribute to the credibility of its projections.

Fowler also factored in the negative regulatory exposure in Connecticut, applying a 5% discount to the valuation. Despite the reduction in the price target, the analyst’s EPS estimates for SJW Corp. remain unchanged, indicating a belief in the company’s ability to meet its financial goals without adjustment.

The upgrade in stock rating to Buy reflects a positive outlook on SJW’s potential for steady growth and a resilient financial structure despite the challenges it faces within the regulatory landscape. InvestingPro’s Financial Health Score of 2.35 (rated as ’FAIR’) supports this balanced view, with particularly strong scores in growth and profitability metrics.

In other recent news, SJW Group, a prominent water and wastewater utility company, has announced a 5% increase in its quarterly cash dividend, elevating the total annualized dividend to $1.68 per share. This decision manifests the board’s confidence in the company’s mission and its employees, as well as their commitment to delivering high-quality water service, environmental protection, and shareholder value. SJW Group has been consistent in maintaining dividend payments for over five decades, with 32 consecutive years of increases.

In other recent developments, the company reported a 10% surge in Q3 revenue to $225.1 million and a 7% increase in net income to $38.7 million, largely due to rate increases and higher water production costs. Additionally, SJW Group has entered an equity distribution agreement, which could lead to the sale of up to $200 million of its common stock in at-the-market offerings, with BofA Securities, J.P. Morgan Securities, RBC Capital Markets, and Wells Fargo (NYSE:WFC) Securities acting as sales agents.

The company also secured a $22.1 million agreement to manage Cupertino’s water system and achieved a $4.3 million revenue increase in Connecticut. Despite concerns from Connecticut towns about tax revenue impacts from potential acquisitions, the company remains focused on maintaining affordability for customers and replacing 1% of pipes annually. These developments reflect SJW Group’s ongoing commitment to infrastructure investment, sustainability, and regulatory compliance.

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