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Janney Montgomery Scott Upgrades Consolidated Water Co. (CWCO) to Buy

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November 12, 2009 7:16 AM EST

Janney Montgomery Scott upgrades Consolidated Water Co. (Nasdaq: CWCO) to Buy.

Finally, the British Virgin Islands dispute, which has simmered on for over two years, has come to a boil. A lot has changed at BVI in the last few months; however, the story finally nears its end, with lost ownership of a water plant, non-cash impairment charges, and a $10 million court award for unpaid receivables. Meanwhile, the core business showed impressive year-over-year margin comparisons once again. Management has done a commendable job in improving gross margin in 2009, though G&A expenses have settled at a higher level in 2009. We think the recent sell-off in the stock overstates the risks, and we expect an earnings recovery in 2010, even with some higher costs. After a long dry spell, significant bid opportunities have emerged, and a new project win in the coming year would be a positive catalyst. We upgrade to BUY, maintaining our $15 fair value for now...We have adjusted our 2009 estimate to account for 3Q results and a reduced 4Q outlook. We have also adjusted our 2010 estimate to $0.75 from $0.81, mainly due to slower than expected economic recovery in the retail business plus higher SG&A expense on growth initiatives."

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Consolidated Water Co. Ltd. produces and supplies water to customers in the Cayman Islands, the Bahamas, the British Virgin Islands, Belize, Bermuda, and the United States.