Valuation Scorecard: Stock Rating F-Lowest (3/18/24)-Middlesex Water Co (MSEX).

Over the next 6 years, Middlesex Water shares will need to reach $85 to achieve average annual stock market performance of 9.0%. Middlesex Water’s stock price will need to reach $100 by 2029 to achieve upper quartile performance. At the current price of $50, what are market expectations regarding Middlesex Water’s future operating performance?

Executive Summary

• Key Middlesex Water characteristics: above average financial strength, instability, very low expected growth, and very low profitability.
• Very low valuation, lagging shareholder returns. Current valuation levels are very low relative to the Middlesex Water Peer Group. Recent market returns have substantially underperformed the Middlesex Water Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Middlesex Water shares should reach a level of $57 by 2029 — an 2.1% per year total shareholder return. A 2029 stock price of $85 would reflect median performance and a price of $100 would be required to reach upper quartile performance.
• Middlesex Water’s past growth is average. Historical growth has been average relative to the Middlesex Water Peer Group and forecasted growth is relatively very low. Revenue Growth has been superior. Asset Growth has lagged. Middlesex Water’s historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has paralleled equity growth and return on equity has been stable.
• Asset Turnover, Pretax ROA, Pretax Margin, and Return on Equity are all group lagging. These factors have negatively affected market perceptions of Middlesex Water. The company has high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Middlesex Water’s risk profile is unfavorable. Overall variability has been very high with very high revenue variability, relatively low E.P.S. variability, and very high stock price volatility. Financial Strength is relatively high and earnings’ expectations are very low. The debt/capital ratio has declined very significantly.

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