Evoqua Water Technologies Corp Set to Accelerate Growth

aqua stockEvoqua Water Technologies Corp Essential to U.S. Water Demands

The new Joe Biden administration is expected to stoke major changes in U.S. domestic and foreign policies. Since the election, so-called Biden stocks—green energy, marijuana, and infrastructure—have surged, and we haven’t even seen any concrete policies from the administration yet.

But we do know there will be a major focus on green energy, in order to reduce the country’s carbon footprint and create millions of jobs.

While climate change and solar power receive the brunt of the news coverage when it comes to environmental topics, I believe the country’s issues with the availability of fresh water will be critical over the following decades. This is where a company like Evoqua Water Technologies Corp (NYSE:AQUA) can come in.

Just look at problem states like California, New Mexico, and Arizona. These regions are struggling with the availability of fresh water.

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Yet, it’s not only the U.S. that has freshwater issues. The reality is that much of the world, especially poor developing countries, has a real problem accessing fresh and safe water for everyday use.

Evoqua Water Technologies Corp is one of many companies resolved to remedy the water issues via its proprietary water treatment solutions.

Regions without access to fresh water and good filtration systems are at risk. Evoqua retrieves water from rivers, lakes, and other areas, then treats it for use in industrial, commercial and municipal settings.

Evoqua stock has been powering higher lately, well up from its March 2020 low of $7.09.

Chart courtesy of StockCharts.com

Strong Fundamentals & Green Push Could Boost AQUA Stock

Evoqua Water Technologies Corp has decent fundamentals, fueled by a string of acquisitions over the past few years. But I feel that the best is yet to come as the world aims for a greener environment.

The company’s revenues have consistently been over $1.0 billion annually from fiscal 2016 to fiscal 2020 (ending in September). The revenue growth rate doesn’t jump out at you like with many technology companies, but for Evoqua, it’s about consistency and profitability.

Fiscal Year Revenues (Billions) Growth
2016 $1.14 7.2%
2017 $1.25 9.7%
2018 $1.34 7.4%
2019 $1.44 7.8%
2020 $1.43 -1.0%

(Source: “Evoqua Water Technologies Corp.” MarketWatch, last accessed January 15, 2021.)

The COVID-19 pandemic slowed things down in fiscal 2020 for Evoqua. The company is expected to see its revenues slightly rise to $1.45 billion in fiscal 2021 and $1.52 billion in fiscal 2022. (Source: “Evoqua Water Technologies Corp. (AQUA),” Yahoo! Finance, last accessed January 15, 2021.)

Evoqua has managed to generate positive earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as profits based on both a generally accepted accounting principles (GAAP) and adjusted earnings-per-share (EPS) basis. The company’s positive free cash flow (FCF) is a major plus.

In fiscal 2020, Evoqua delivered a five-year EBITDA best of $280.4 million, continuing a steady five-year growth streak.

Fiscal Year EBITDA (Millions) Growth
2016 $127.0 63.1%
2017 $170.4 34.2%
2018 $172.2 1.1%
2019 $184.2 7.0%
2020 $280.4 52.2%

(Source: MarketWatch, op. cit.)

Evoqua Water Technologies Corp has been GAAP-profitable in four of the last five years. The profit of $0.94 per diluted share in fiscal 2020 was impressive, representing a five-year high.

Fiscal Year GAAP Diluted EPS Growth
2016 $0.10 113.5%
2017 $0.02 -79.8%
2018 $0.05 155.0%
2019 -$0.08 -262.8%
2020 $0.94 1,231%

(Source: MarketWatch, op. cit.)

Adjusting for one-time items, analysts estimate that Evoqua Water Technologies Corp will earn $0.64 per diluted share in fiscal 2021, slightly below the $0.67 per diluted share that the company reported in fiscal 2020. (Source: Yahoo! Finance, op. cit.)

Things are expected to pick up in fiscal 2022, with the company ramping up its profits to $0.76 per diluted share.

Evoqua has generated positive FCF in the last three years, including a five-year high in fiscal 2020.

Fiscal Year FCF Growth
2016 -$15.8 Million -640.5%
2017 -$29.3 Million -85.2%
2018 $304,000 101.0%
2019 $36.3 Million 11,849.7%
2020 $69.9 Million 92.4%

(Source: MarketWatch, op. cit.)

Analyst Take

I’m impressed with the fundamentals at Evoqua Water Technologies Corp. Furthermore, the global push toward a cleaner environment should help the company in its quest to help solve freshwater issues.

The domestic opportunities to address the water problems will likely resurface with the Biden administration, which would benefit Evoqua stock.