Essential Utilities (WTRG) Keeps Growing While Profits Quietly Slide

On August 4, Essential Utilities (NYSE:WTRG) unveiled mixed second-quarter results, painting a picture of growth and challenges. Revenue increased, the dividend grew for the 36th time in 35 years, and the merger with American Water neared completion. However, adjusted earnings per share declined slightly, and the overall profitability appeared to be flat.

The company's regulated water segment reported $357.5 million in revenue, a 7.6% increase from the year before, while first-half revenue rose 7.2% to nearly $1.4 billion. The revenue growth was driven by rate cases, with $43.9 million in new water revenue approved across various states and additional $79.7 million in gas rate requests pending.

The company also made acquisitions, signing deals worth $4.9 million in Bastrop County, Texas, and $282 million for over 200,000 new customers in several states. Despite these positive signs, adjusted net income fell to $105.7 million, with GAAP earnings per share dropping to $0.37, only thanks to excluding merger-related costs.

Higher costs and regulatory recoveries weighed on the company's bottom line. The dividend was raised 5.25% to $0.3606 per share amid the growth, but doubts remain about how much of the revenue growth is due to organic expansion. Institutional interest has increased, with 40 hedge funds now holding WTRG stock, while short sellers have positioned against only 2.10% of the float.

The stock trades at 17.45 times forward earnings, reflecting market confidence in steady growth. However, the mixed financial results create a dilemma for investors, as the potential upside of the merger and acquisitions is contrasted with declining profits and rising costs.