Aqua America (NYSE: WTR ) had another successful year of acquisition-fueled growth in 2011. The water utility saw stronger top and bottom lines, taking in $712 million in 2011, an increase of $18 million over 2010, with a solid $19 million increase in annual net income. It was strong growth on the back of only 3,000 more customers, and was matched by $14 million more in capital expenditures, bringing the year's build-out and infrastructure improvement expenses to $331 million.
How is Aqua America moving forward into 2012? Let's find out.
Making progress slowly
A utility almost never offers earth-shattering news, but that's not why anyone would invest in one. And there has been plenty of news out of Aqua America this year, mostly regarding multiple acquisitions. Here are the big ones:
- At the end of 2010, Aqua bought operations serving about 5,300 Texan customers from American Water Works (NYSE: AWK ) and sold Missouri operations serving 3,900.
- Aqua sold Maine operations serving 16,000 customers to Connecticut Water Service (Nasdaq: CTWS ) in mid-2011.
- At the same time, Aqua undertook two large transactions, acquiring 57,000 Ohio customers from American Water Works and selling off New York operations serving 51,000.
One interesting disclosure was that a subsidiary had entered into a pipeline venture to supply water to natural gas fracking operations in Pennsylvania's Marcellus formation. When it comes online sometime in the first half of the year, the new venture could boost the company's take by a fair bit more than adding a few homeowners at a time, because fracking tends to require millions of gallons of fluid in order to work.
On the other hand, it could cause PR headaches, such as what befell Chesapeake Energy (NYSE: CHK ) this past spring. The driller's fluid got loose and wound up contaminating groundwater near one of its thousands of Pennsylvania wellheads. Of course, Aqua's contribution is non-toxic, but public backlash could throw a wrench into this well-intentioned expansion plan.
That's hardly a reason to run from a utility that's been growing steadily and has few obstacles in its acquisitive path, but it's worth keeping an eye on. The company trades at two-thirds of the earnings multiple of larger water services provider Veolia Environnement (NYSE: VE ) , and lacks that company's worrisome European exposure. There don't seem to be any pending management problems at Aqua, either. The stock's been quite stable, and even seems to be a bit undervalued relative to its earnings growth:
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