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Tuesday July 31, 2012
2 niche players in water sector
by Roger Conrad, editor Utility Forecaster  Where are the opportunities in the water sector now? Niche technology companies focused on treatment and metering still have a solid industry-related market. Here's a look at two of our favorite recommendations in this sector: Aegion Corp. (AEGN) and Itron Inc. (ITRI). Aegion Corp.’s longtime core business has been repairing water and waste water pipelines, primarily for municipalities and other government entities. This business has been in a major slump for several years, though the company has been able to continue winning contracts, including a $6.3 million deal with Springfield, Missouri, and a $5 million deal with Aurora, Colorado, both locked up in June. The lion’s share of growth, however, is coming from pipeline protection and rehabilitation applications serving the energy and mining industries globally. Aegion expects a return on invested capital of 10 percent in 2012 and is working to raise that to 15 percent in subsequent years. That translates to earnings excluding one-time items of $1.40 to $1.60 for this year, putting the current share price at less than 10 times profits. Aegion isn’t a utility, and its business model is subject to the waxing and waning of its customers’ fortunes. Most of these, however, are quite reliable payers. This factor, along with low debt, means low risk for the company. Up about 20 percent from last year’s recommendation, Aegion is still a buy up to 20. Another one of our water tech recommendations -- advanced meter maker Itron -- is up about 10 percent since our buy, though with considerably more ups and downs along the way. Itron, which also sells meters to the power industry, has lately made major inroads in Asia. Its Suzhou factory in China now supports residential and industrial water meters and heat meters sales globally. Despite a volatile share price and some cyclicality of orders, Itron has consistently grown its earnings and revenue year in year out. That may stall in 2012, as 39 percent of first-quarter sales were in slumping Europe. But management appears to have made the needed investment to return to growth in 2013-14. Selling for just 60 percent of sales and very much in play as a potential takeover target, Itron is a buy up to 45. Learn more about this financial newsletter at Roger Conrad's Utility Forecaster. Related articles: 
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