Barclays Initiates Connecticut Water Service At Equal Weight

The brokerage said the earnings growth should be more in line with capital spending after the last several years being driven more from a combination of capital investment, O&M efficiency and the benefit of repair tax expense usage.

"We see potential upside growth from tuck in acquisitions and acceleration of main replacement. We see potential downside risks from regulatory outcomes and customer bill impacts if repair tax accounting does not continue," analyst Daniel Ford wrote in a note.

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However, the analyst noted a key risk in the form of regulation as about 95 percent of the company's earnings are regulated. The company operates in Connecticut and Maine, with the Connecticut jurisdiction being consolidated and Maine having multiple regulatory jurisdictions.

"Both Maine and Connecticut have decoupling in place as well as DSIC like trackers to allow for the contemporaneous return of certain capital investments," the analyst added.

The analyst's EPS estimates are $2.12/$2.21/$2.31 for 2016/2017/2018, respectively. The price target of $53 is based on a 2018 group average P/E of 22.8 applied to 2018 EPS estimate of $2.31.

At time of writing, shares were up 1.12 percent at $46.92.

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