Research Overview
Growing Need for Investment in the Water Industry
Demand-supply disequilibrium is a significant challenge facing the U.S. water
industry, and this underscores the importance for increased investment. Between
1992 and 2003, the overall spending on water grew by a mere 2 percent, proving
that investments to meet the industry growth targets are long overdue. As per
the Environment Protection Agency (EPA), an estimated $138 billion is required
by 2016 to upgrade/replace the water infrastructure for compliance with the
safety standards prescribed by the Safe Drinking Water Act (SDWA). There is also
an urgent need to address concerns surrounding the sustainability of public
water systems and security of the water facilities. Since water stocks prove to
be safe investments even when markets are down, industry participants need to
make a concerted effort to generate higher investments.
This Frost & Sullivan research provides an investment overview of the
water equipment and services market in the United States. It provides a detailed
financial analysis of various companies and up-to-date information regarding the
latest mergers and acquisitions in the industry. The study also provides a
detailed analysis of the municipal, industrial, and residential segments in the
water industry.
Growing Public Awareness Regarding Water Quality and Regulatory Controls
Drive the Market
The distribution of funds in the Drinking Water State Revolving Fund (DWSRF)
program revealed that treatment represented the largest percentage of project
costs (43 percent), followed by projects to address transmission and
distribution needs (32 percent). "The law requires that states give
priority to projects that are needed to protect public health and ensure
compliance with the SDWA," says the analyst of the research. Deriving its
demand from this trend, advanced water treatment methods such as reverse
osmosis, ultra violet filtration, and ozone treatment have gained considerable
market attention in recent years.
Another key trend seen in the industry is the growing importance of contract
services/outsourcing for the operation and maintenance of water and wastewater
treatment facilities. As the demand for investment for expansion or upgrade of
water infrastructure increases, service providers have emerged as a vital source
of funding for water utilities.
Entry of Larger Companies Brings about Consolidation in the Water Industry
With the recent entry of several large participants such as GE, Siemens AG,
Suez Lyonnaise des Eaux, and RWE Thames Water among others, a lot of
consolidation activity has been taking place in the industry. Siemens AG
recently purchased the systems and services businesses of USFilter Corporation
from Veolia Environment, making it the largest water services company in the
United States. "Such mergers and acquisitions in the U.S. water industry
are bound to bring in the required funds for recent investment/expansion
projects as the bigger participants jostle for market share," observes the
analyst.
Frost & Sullivan Growth Partnership Service
Based on extensive and in-depth research, real-world consulting work, and new
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1 U.S. WATER INDUSTRY OVERVIEW
- Executive Summary
- Introduction
- Conclusion
- Inclusions Exclusions Assumptions Scope
- Federal Spending on Water Resources and Water Transportation from 1992 to
2003
- Federal Spending on Water
2 REVENUE FORECASTS AND DEMAND SIDE PERSPECTIVES FOR THE U.S WATER INDUSTRY
- Revenue Forecasts and Demand Side Perspectives for the U.S. Water Industry
- Total Water Equipment
- Clarification Equipment
- Gravity Filtration Equipment
- Pressure Filtration Equipment
- Membrane Treatment Equipment
- Ion Exchange Equipment
- Electrodialysis Equipment
- UV Disinfection Equipment
- Ozone Disinfection Equipment
- Chlorine Disinfection Equipment
- Desalination Equipment
- Sludge Digestion Equipment
- Sludge Dewatering Equipment
- Sludge Drying Equipment
- Sludge Incineration Equipment
- Revenue Forecasts for the U.S. Residential Water Treatment Equipment
Market
- Overview
- Point-of-Entry Equipment
- Point-of-Use (POU) Equipment
- Revenue Forecasts for the U.S. Operation and Maintenance and DBO Contracts
- Operation & Maintenance Contracts and DBO Contracts
3 GROWTH OPPORTUNITIES
- Frost & Sullivan Water Industry Growth Monitor
- U.S. Water Industry Growth Monitor
- Specific Growth Sectors
- U.S. Water Financing
- Membrane Market Trends
- Drinking Water Security Markets
4 FINANCIAL ANALYSIS OF THE WATER INDUSTRY
- The Frost & Sullivan Water Universe
- Industry Profitability
- Common Size Income Statement
- Year-over-Year Sales Growth
- Average Operating Margin
- Degree of Net Operating Leverage (Change in Net Income/Change in
Sales)
- Incremental Margin
- Fixed Cost Structure Analysis
- Selling General and Administrative Expenses (SG&A) as a Percent of
Sales
- Number of Employees
- Sales Per Employee
- R&D Per Employee
- R&D to Sales
- R&D per Employee and Operating Margin
- R&D to Sales and Operating Margin
- Cash Flow and Balance Sheet Analysis
- Free Cash Flow (FCF)
- Free Cash Flow Margin
- FCF As a Percent of Operating Income
- Selected Uses of Cash - Quality of Earnings (QOE)
- Industry Leverage - Leverage Ratio
- Solvency Ratio
- Efficiency Ratio
- Working Capital Analysis
- Profitability Ratio
- Pension Analysis
- Pension Impact on EPS
- Funded Status of Pension Plans
- Comparison between Capex Expenditure and Pension Contribution
- Expensing Stock Options: What would be the Implications?
- Expensing Stock Options - Impact on EPS
5 WATER INDUSTRY VALUATION
- Historical Valuation
- Enterprise Value/LTM Sales to 6-Year Sales CAGR
- Enterprise Value/LTM EBITDA to 3-Year Average Operating Margin
- Stock Performance
- Individual Stock Performance
- Price-Earnings to Growth (PEG)
- Dividend Yield (As on 10/20/04)
- Water Industry Stock Index
- Water Industry Stock Index (WISI)
- Historical M & A Valuation
- Mergers & Acquisitions in the Industry
- Acquisition Deals: Average EV/LTM Sales
- 2004 Industry Growth Outlook
- EPS Guidance for the Next Fiscal Year
