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How High Will Aqua America Fly?

http://www.fool.com/investing/general/2012/06/07/how-high-will-aqua-america-fly.aspx

Alex Planes
June 7, 2012

Shares of Aqua America (NYSE: WTR  ) hit a 52-week high yesterday. Let's look at how the company got there to find out whether clear skies remain on the horizon.

How it got here
Let's face it: Utilities don't make big moves all too often. Aqua America's no different, and until the past week its stock had been essentially flat for the past year. Over the past five trading days, however, Aqua America gained more than it had in the year prior. It wasn't great earnings, as growth was very subtle -- and those earnings were released a month ago. So what could have happened? Well, let's start with an incessant stream of bad news from Europe and end with more American economic weakness.

Defensive stocks do well in downturns, and it's hard to get more defensive than a water utility. Aqua America's done fairly well over the past year, beating most in its moribund peer group. Only American Water Works (NYSE: AWK  ) has done better domestically, but even a flat year would be better than the misery faced by shareholders in French utility conglomerate Veolia Environment (NYSE: VE  ) :

WTR Total Return Price Chart

WTR Total Return Price data by YCharts

Location matters, but it also doesn't help Veolia to be more diversified and more spread out than its American peers. Are these defensive stalwarts still good buys as the market starts to crack? Let's find out.

What you need to know
Aqua America stands out from its peers primarily for a higher net margin and for consistent growth, which has been fueled in recent years by a series of minor acquisitions. However, it's very much in line with the valuation ranges of others (with the exception of Veolia, currently in the red):

Company

P/E Ratio

3-Year Annualized Earnings Growth

Net Margin (TTM)

Aqua America 22.5 10.8% 21%
American Water Works 19.0 NM 12.1%
Veolia Environment NM NM (1.7%)
Middlesex Water (Nasdaq: MSEX