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Investing.com - UBS downgraded Essential Utilities, Inc. (NYSE:WTRG) from Buy to Neutral and lowered its price target to $45.00 from $46.00 following the company’s merger agreement with American Water. The stock, currently trading at $40.63, maintains a strong dividend track record with 32 consecutive years of increases and a current yield of 3.32%. According to InvestingPro analysis, the company appears overvalued at current levels.
Essential Utilities agreed on October 27 to merge with American Water in an all-stock transaction with an exchange ratio of 0.305x and no collar, according to UBS.
The transaction is expected to close in the first quarter of 2027, with Essential Utilities likely to follow its stand-alone financial plan until the closing date.
UBS notes that both companies operate in territories with first-quartile regulation based on the firm’s regulatory rankings, and it expects the transaction to successfully close.
The downgrade reflects UBS’s updated assessment of Essential Utilities’ investment potential in light of the pending merger agreement with American Water.
In other recent news, American Water Works Company and Essential Utilities have announced a merger in an all-stock transaction. This merger will create a major water and wastewater utility, serving 4.7 million connections across 17 states, with a combined market capitalization of approximately $40 billion. Under the agreement, Essential Utilities shareholders will receive 0.305 shares of American Water for each Essential share, offering a 10% premium based on recent stock prices. Following the merger, American Water shareholders will own about 69% of the new entity, while Essential Utilities shareholders will own 31%.
Additionally, Essential Utilities has seen positive attention from investment firms. Jefferies has raised its price target for Essential Utilities to $47, citing improved fundamentals and long-term visibility. Barclays has also initiated coverage of Essential Utilities with an Overweight rating and a price target of $42, highlighting the company’s dual role as a regulated water utility and gas distribution company. Furthermore, Essential Utilities has appointed Sadzi Martha Oliva as the new president of Aqua Indiana, following the retirement of Bob Ervin.
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