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Investing.com -- Barclays initiated coverage of Essential Utilities Inc. with an Overweight rating and a $42 price target on steady growth prospects in the regulated water and gas business.
The brokerage highlighted the company’s long-term rate base growth, driven by Aqua and Peoples Gas, supporting an EPS CAGR at the high end of 5-7% through 2027.
“We initiate coverage of Essential Utilities with an Overweight rating seeing the stock as a preferred way to gain exposure to the water industry,” analysts at Barclays said.
Pennsylvania accounts for about 75% of the rate base and has historically been favorable for the company.
Barclays expects a positive credit outlook over the next six months as the company issues equity to fund expansion while managing leverage.
Barclays also pointed to potential growth from M&A, with Essential Utilities targeting municipal water assets at attractive valuations and financing acquisitions with roughly a 50/50 debt-equity split.
The brokerage said upcoming earnings and regulatory updates in North Carolina, Ohio, Texas, and Virginia could act as catalysts.
The stock trades at a FY27E P/E of 16.2x, roughly 6.7% below the water utility group and 5.3% below the gas group. Risks include regulatory setbacks, balance sheet pressures, and broader inflationary headwinds.