by Roger Conrad, editor Utility Forecaster
Where are the opportunities in the water sector now? Niche technology
companies focused on treatment and metering still have a solid
Here's a look at two of our favorite recommendations in this sector: Aegion Corp.
) and Itron Inc.
Aegion Corp.'s longtime core business has been repairing water and waste
water pipelines, primarily for municipalities and other government
This business has been in a major slump for several
years, though the company has been able to continue winning contracts,
including a $6.3 million deal with Springfield, Missouri, and a $5
million deal with Aurora, Colorado, both locked up in June.
lion's share of growth, however, is coming from pipeline protection and
rehabilitation applications serving the energy and mining industries
Aegion expects a return on invested capital of 10 percent in 2012 and is
working to raise that to 15 percent in subsequent years.
translates to earnings excluding one-time items of $1.40 to $1.60 for
this year, putting the current share price at less than 10 times
Aegion isn't a utility, and its business model is
subject to the waxing and waning of its customers' fortunes. Most of
these, however, are quite reliable payers.
This factor, along
with low debt, means low risk for the company. Up about 20 percent from
last year's recommendation, Aegion is still a buy up to 20.
one of our water tech recommendations -- advanced meter maker Itron --
is up about 10 percent since our buy, though with considerably more ups
and downs along the way.
Itron, which also sells meters to the
power industry, has lately made major inroads in Asia. Its Suzhou
factory in China now supports residential and industrial water meters
and heat meters sales globally.
Despite a volatile share price
and some cyclicality of orders, Itron has consistently grown its
earnings and revenue year in year out. That may stall in 2012, as 39
percent of first-quarter sales were in slumping Europe.
management appears to have made the needed investment to return to
growth in 2013-14. Selling for just 60 percent of sales and very much in
play as a potential takeover target, Itron is a buy up to 45.