Raymond James Clarifies Stance On AquaVenture, Evoqua

Raymond James made ratings changes Tuesday for the clean water technology companies AquaVenture Holdings WAAS and Evoqua Water Technologies Corp. AQUA.

The Analyst

Raymond James analyst Pavel Molchanov downgraded AquaVenture from Strong Buy to Outperform with a $22 price target.

The analyst upgraded Evoqua Water from Outperform to Strong Buy with a $26 price target.

The Thesis

Despite strength in 2017, clean technology is lagging behind the oil-levered subsector and is on par with midstream and oil services, Molchanov said in a Tuesday note. (See his track record here.) 

“To be crystal clear, there is an absence of trading correlation either way between clean tech and oil. The market largely recognizes the fact that oil (or other hydrocarbon) prices are irrelevant for most clean tech stocks, with only a small portion of petroleum substitute exceptions,” the analyst said. 

AquaVenture

The company has delivered several small acquisitions as of late, including the delayed purchase of a desalination plant in Ghana, its most financially impactful acquisition in years, Molchanov said. 

“We do not think that the deal is in jeopardy — and, in fact, the stock’s reaction to last week’s headline was very subdued — but insofar as management’s attention is still on Ghana, presumably they will have less bandwidth to devote to other M&A opportunities, especially in the Seven Seas [desalination] segment.”

Evoqua

Evoqua shares have declined 25 percent year-over-year, with the stock trading at its lowest level since the initial public offering in November 2017, Molchanov said. The stock is now considered the worst-performing in its peer group, he said.

“First, the secondary offering by pre-IPO shareholders in March — when the stock was at its highs — naturally caused some temporary selling pressure. More recently, and more fundamentally, the (rather straightforward) answer is: no matter how good the underlying theme is, companies still have to execute on a consistent basis.”

Price Action

Evoqua shares were up 1.63 percent at $18.04 at the close Tuesday, while AquaVenture shares were down 1.55 percent at $17.20. 

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