BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RATING SINCE 12/16/2010 TARGET PRICE $51.40 BUSINESS DESCRIPTION Middlesex Water Company, through its subsidiaries, owns and operates regulated water utility and wastewater systems. The company operates in two segments, Regulated and Non-Regulated. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 16.92 4.11 27.12 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues -4.29-0.68 4.03 Net Income -13.30-14.12 5.09 EPS -14.82-14.97 4.35 Sector: Utilities: Non-telecom Sub-Industry: Water Utilities Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History BUY TARGET PRICE $51.40 55 50 45 40 35 30 25 20 RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2017 8.95 10.49 13.41 Q3 2016 10.84 9.50 11.79 Q3 2015 9.21 9.51 12.91 P/E COMPARISON Volume in Millions 2015 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History RECOMMENDATION We rate () a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income. 2 1 0 35.60 EPS ANALYSIS¹ ($) 26.18 Ind Avg 24.97 S&P 500 HIGHLIGHTS 's earnings per share declined by 14.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, increased its bottom line by earning $1.38 versus $1.22 in the prior year. This year, the market expects an improvement in earnings ($1.40 versus $1.38). The debt-to-equity ratio is somewhat low, currently at 0.73, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a debt-to-equity ratio, the quick ratio of 0.39 is very and demonstrates a lack of ability to pay short-term obligations. Q1 0.22 Q2 0.31 Q3 0.41 2015 Q4 0.28 Q1 0.29 Q2 0.36 Q3 0.54 2016 NA = not available NM = not meaningful Q4 0.19 Q1 0.27 Q2 0.33 Q3 0.46 2017 1 Compustat fiscal year convention is used for all fundamental data items. 45.32% is the gross profit margin for which we consider to be. Regardless of 's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 21.12% trails the industry average., with its decline in revenue, slightly underperformed the industry average of 2.5%. Since the same quarter one year prior, revenues slightly dropped by 4.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share. In its most recent trading session, has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its earnings growth as well as other mixed factors. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels. PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -5% 35% UNFAVORABLE CDZI -2000% EBITDA Margin (TTM) FAVORABLE CWT SJW CTWS ARTNA YORW AWR WTR GWRS 250% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $189 Million and $6.5 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -5% 35% UNFAVORABLE CDZI -12.5% Earnings Yield (TTM) GWRS FAVORABLE CWT CWCO SJW CTWS ARTNA YORW AWR WTR Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -2.1% and 33.8%. Companies with NA or NM values do not appear. 5% INDUSTRY ANALYSIS The US water utilities industry is comprised of companies that purchase, treat, and redistribute water to end consumers. A typical water system consists of a water source, a system of storage reservoirs, a treatment facility, and a pipe distribution system. This $130 billion Industry is growing revenue at a compounded annual growth rate of about 4%. Domestic consumption is approximately allocated to 35% industrial, 25% agricultural, and 40% other personal and household usage. With an estimated 54,000 community water systems and 16,600 government-owned wastewater treatment facilities, the US water utilities industry remains highly fragmented. The industry is highly regulated, and provides a life-sustaining product, which subjects utilities to lower business cycle risks and strict regulation. Prices are fixed by public utilities commissions, so profitability depends upon operational efficiency. Commercial companies operate by owning a local system, operating a system on behalf of a local government, or owning parts of a system, such as water wells or reservoirs. The industry is dominated by large international conglomerates such as Companhia de Saneamento Basico (SBS), Aqua America (WTR), California Water Service (CWT), and American States Water (AWR). Few large players, low service differentiation, and high fixed costs enhance competition characterize the industry. Economies of scale and substantial capital investment reduce the threat of new entrants. Fragmentation and the need for technological and managerial expertise have led to massive consolidations. Aqua America alone has completed over 230 acquisitions since 1995. Demand depends upon commercial and residential water needs, which are related to population growth and economic activity. The responsibility for provision of water supplies lies with individual municipalities or syndicates of municipalities that may choose to provide their own water supply operations or outsource operations to water utility companies. The lack of choices amongst suppliers, the essential nature of water, and government control of pricing and quality standards tilts the balance of power to suppliers. As per the Safe Drinking Water Act, the Environmental Protection Agency (EPA) is required to set standards for drinking water quality and to oversee all states, localities, and water suppliers that implement these standards. The EPA provides significant funding to utilities through State Revolving Funds. Each state s water tariff rate is set by its respective public utility commission. PEER GROUP: Water Utilities Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 44.50 727 35.60 131.13 20.68 CTWS CONNECTICUT WATER SVC INC 61.47 743 29.84 103.75 23.96 WTR AQUA AMERICA INC 36.54 6,493 27.47 803.01 235.91 YORW YORK WATER CO 36.10 464 37.22 48.12 12.39 ARTNA ARTESIAN RESOURCES 40.67 371 28.84 81.46 13.00 CDZI CADIZ INC 13.45 307 NM 0.45-32.70 CWT CALIFORNIA WATER SERVICE GP 44.45 2,134 31.30 655.83 68.60 AWR AMERICAN STATES WATER CO 56.18 2,061 30.70 443.22 67.71 CWCO CONSOLIDATED WATER CO INC 13.10 195 32.75 61.59 5.98 GWRS GLOBAL WATER RESOURCES INC 9.63 189 107.00 30.62 1.73 SJW SJW GROUP 66.25 1,360 24.63 375.00 55.63 The peer group comparison is based on Major Water Utilities companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION Middlesex Water Company, through its subsidiaries, owns and operates regulated water utility and wastewater systems. The company operates in two segments, Regulated and Non-Regulated. The Regulated segment collects, treats, and distributes water on a retail and wholesale basis to residential, commercial, industrial, and fire protection customers in parts of New Jersey, Delaware, and Pennsylvania. This segment also operates regulated wastewater systems in New Jersey and Delaware. The Non-Regulated segment provides non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware. Middlesex Water Company was founded in 1897 and is headquartered in Iselin, New Jersey. 1500 Ronson Road Iselin, NJ 08830 USA Phone: 732-634-1500 http://www.middlesexwater.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 4.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 70% of the stocks we rate. Total Return 4.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 80% of the companies we cover. Efficiency 3.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 60% of the companies we review. Price volatility 4.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 80% of the stocks we monitor. Solvency 4.5 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 80% of the companies we analyze. Income 4.0 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 70% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINANCIAL ANALYSIS 's gross profit margin for the third quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. Sales and net income have dropped, underperforming the average competitor within its industry. has very liquidity. Currently, the Quick Ratio is 0.39 which clearly shows a lack of ability to cover short-term cash needs. The liquidity decreased from the same period a year ago, despite already having liquidity to begin with. This would indicate deteriorating cash flow. 0.33 Q4 FY17 1.40 E 2017(E) 1.71 E 2018(E) At the same time, stockholders' equity ("net worth") has remained virtually unchanged only increasing by 3.99% from the same quarter last year. The key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the near future. INCOME STATEMENT Net Sales ($mil) 36.17 37.79 EBITDA ($mil) 16.39 17.40 EBIT ($mil) 12.81 14.16 Net Income ($mil) 7.64 8.81 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 2.70 1.45 Total Assets ($mil) 651.92 612.45 Total Debt ($mil) 166.85 150.60 Equity ($mil) 229.46 220.66 PROFITABILITY Gross Profit Margin 45.32% 46.04% EBITDA Margin 45.31% 46.03% Operating Margin 35.40% 37.45% Sales Turnover 0.20 0.22 Return on Assets 3.17% 3.93% Return on Equity 8.95% 10.84% DEBT Current Ratio 0.51 0.69 Debt/Capital 0.42 0.41 Interest Expense 1.49 1.43 Interest Coverage 8.58 9.91 SHARE DATA Shares outstanding (mil) 16 16 Div / share 0.21 0.20 EPS 0.46 0.54 Book value / share 14.04 13.55 Institutional Own % NA NA Avg Daily Volume 38,224 48,096 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for has not changed since 12/16/2010. As of 11/22/2017, the stock was trading at a price of which is 4.1% below its 52-week high of $46.39 and 38.1% above its 52-week low of $32.23. 2 Year Chart BUY: $25.04 2016 $50 $40 $30 MOST RECENT RATINGS CHANGES Date Price Action From To 11/20/15 $25.04 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 11/22/2017) 44.02% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.74% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 25.24% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. This stock's P/E ratio indicates a premium compared to an average of 26.18 for the Water Utilities industry and a significant premium compared to the S&P 500 average of 24.97. For additional comparison, its price-to-book ratio of 3.17 indicates valuation on par with the S&P 500 average of 3.17 and a premium versus the industry average of 2.82. The price-to-sales ratio is well above the S&P 500 average, but well below the industry average. After reviewing these and other key valuation criteria, proves to trade at a premium to investment alternatives within the industry. Price/Earnings 35.60 Peers 26.18 Premium. A higher P/E ratio than its peers can signify a more expensive stock or higher growth expectations. is trading at a significant premium to its Price/Projected Earnings 26.02 Peers 24.66 Premium. A higher price-to-projected earnings ratio than its peers can signify a more expensive stock or higher future growth expectations. is trading at a significant premium to its Price/Book 3.17 Peers 2.82 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a premium to its Price/Sales 5.55 Peers 11.00 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. DISCLAIMER: Price/CashFlow 16.13 Peers 12.73 Premium. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a significant premium to its Price to Earnings/Growth 24.72 Peers 4.23 Premium. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant premium to its Earnings Growth lower higher -14.97 Peers 32.02 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher -0.68 Peers 8.58 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5