Essential Utilities stock rating upgraded, price target set at $41

On Tuesday, Essential Utilities, Inc. (NYSE: NYSE:WTRG), currently trading at $35.43 with a market capitalization of $9.7 billion, received an upgrade in stock rating from Hold to Buy by analysts at Jefferies, with a new price target set at $41.00. The upgrade is fueled by several factors, including anticipated progress in water acquisition deals and significant capital expenditure related to compliance investments. According to InvestingPro data, the stock is trading near its 52-week low, potentially presenting an interesting entry point for investors seeking exposure to the utilities sector.

The firm's analysts highlighted the expectation of Essential Utilities returning to water acquisitions, particularly in Pennsylvania and potentially in other regions, with key transactions set to close in the first quarter of 2025. This move is seen as a catalyst for the company's growth. The company maintains a strong track record of shareholder returns, with InvestingPro data showing 32 consecutive years of dividend increases and 55 years of consistent dividend payments.

Additionally, the company is expected to benefit from considerable capital expenditures arising from ongoing investments aimed at compliance. Such investments are likely to contribute to an enhanced earnings trajectory for Essential Utilities, providing greater visibility into the company's financial future. The company maintains a healthy gross profit margin of 59.2%, though InvestingPro analysis indicates it operates with a significant debt burden. For deeper insights into Essential Utilities' financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Jefferies has maintained its earnings per share (EPS) estimates for the fiscal years 2024 and 2025 at $1.98 and $2.15, respectively. The firm projects a compound annual growth rate (CAGR) of 6.4% through fiscal year 2029, which is slightly above the company's guidance midpoint and marginally below the consensus.

The analysts at Jefferies expressed confidence in Essential Utilities' growth prospects, citing a total shareholder return (TSR) of 20% associated with the new price target. The upgrade reflects a positive outlook on the company's ability to execute its strategic initiatives and capitalize on investment opportunities.

In other recent news, Essential Utilities Inc. has reported a solid financial performance for the third quarter of 2024, surpassing earnings per share (EPS) expectations with a reported EPS of $0.25. The company's Q3 revenues increased by 6% to $435.3 million, primarily driven by rate adjustments and increased sales. Additionally, Essential Utilities has announced significant investments of $932.5 million in infrastructure projects, with plans to invest between $1.3 and $1.4 billion in 2024.

Jefferies has downgraded Essential Utilities Inc. from Buy to Hold due to concerns about a slowdown in long-term water segment growth. Despite the downgrade, the company reported a solid third quarter that met analyst's initial expectations. The company is also planning to raise $350 million in equity between 2024 and 2025 to support its growth.

Furthermore, Essential Utilities Inc. has boosted non-employee director pay, with annual cash retainers amounting to $110,000 and annual equity awards totaling $135,000 per director. The decision was informed by consultations with Pay Governance and recommendations from the Executive Compensation Committee and the Corporate Governance Committee. These developments demonstrate the company's strategy to attract and retain high-quality board members.

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