Essential Utilities (WTRG): Profit Margins Slip, Testing Bullish Narratives on Earnings Quality

Essential Utilities (WTRG) reported annual earnings growth of 16%, outpacing its five-year average of 13.2%. While net profit margins slid to 27.6% from last year’s 28.7%, the company’s earnings remain high quality. Future growth is expected to be steady, with projections of 7.5% earnings growth and 5.7% revenue growth per year, both trailing the broader US market averages. Investors are likely to keep an eye on moderating profit margins and mixed valuation signals as the company balances ongoing profit growth with concerns around financial health and dividends.

See our full analysis for Essential Utilities.

Next up, we’ll see how these results measure up against the leading market narratives. The analysis will explore whether they support the prevailing story or raise new questions.

See what the community is saying about Essential Utilities

• With a price-to-earnings ratio of 17.2x, Essential Utilities sits below the peer group average of 20.4x and is trading modestly above the global water utilities industry average of 16.5x.

• Analysts’ consensus view sees this relative value supporting the idea of a stable long-term investment, even as future growth projections moderate:

  • Current share price of $39.68 is just below DCF fair value at $40.06, adding weight to the consensus that the stock is reasonably valued alongside sector peers.

  • Consensus narrative notes recent acquisitions, strategic infrastructure spending, and a robust ESG profile all strengthen the foundation for earnings visibility over the next several years.

Curious how the market’s balanced take lines up with the latest valuation and growth story? 📊 Read the full Essential Utilities Consensus Narrative.

• Profit margins declined to 27.6% from last year’s 28.7%, and analysts expect a further dip to 27.0% over the next three years.

• Analysts’ consensus narrative flags cost pressures and regulatory headwinds as the key challenge to sustaining high margins:

  • Operating costs tied to infrastructure upgrades and environmental compliance, such as PFAS treatment, continue rising faster than some allowed returns. This tests management’s ability to protect margins.

  • Greater regulatory scrutiny over rate increases in major markets could constrain upside, supporting the more cautious elements of the consensus view.

• Annual earnings and revenue are projected to grow at 7.5% and 5.7% per year respectively, slower than the wider US market, but with a high level of quality and predictability.

• According to the analysts’ consensus, Essential’s well-planned $1.4 billion infrastructure spend and recent successes with rate cases support reliable, though unspectacular, growth:

  • Expanding in high-growth regions like Texas and maintaining a strong ESG track record provide long-term visibility even though customer growth remains steady rather than accelerating.

  • Sustaining dividend growth after more than 30 years helps attract capital, providing another layer of durability to the investment case.