A Water Desalination Play With 2 Catalysts Coming Soon

In a new report, ROTH Capital Partners analyst Gerry Sweeny takes a look at what 2016 has in store for Consolidated Water Co. Ltd. CWCO. According to Sweeny, the stock has two bullish catalysts ahead this year.

First, the Baja California Water Commission is expected to announce the winning bidder for the Rosarito Desalination Plant in May.

“We continue to believe CWCO is well positioned for the bid as it has secured environmental permits power offtakes and land for the facility, which we don’t believe any other bidders possess,” Sweeny explains.

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In addition, Consolidated Water is currently in rate structure negotiations with the Grand Cayman Water Authority. The previous license included a government royalty of 6.5 percent of gross sales, but Sweeny explains that the government is now looking to implement a return on invested capital structure. Without the details of a potential agreement it’s hard to determine the ultimate impact of a new deal. However, Sweeny believes it will likely result in more capital spending by Consolidated Water.

Although the company fell short of ROTH’s EPS and revenue estimates in Q4, the firm believes that its 2016 catalysts now have risk skewed to the upside.

Disclosure: the author holds no position in the stocks mentioned.