The Prudent Investor

Comparing California Water Service Group And SJW Corporation
February 22, 2007, 9:05 am
Filed under: Water Utilities

When I began this journey of comparing companies, I had no idea where it would take me. That is a good thing because it removed me from preconceived ideas as to where I should end up. As it turns out, the two remaining companies, California Water Service Group (CWT) and SJW Corporation (SJW) are equivalent in many areas.

The share price and market cap are close to one another. CWT holds a significantly higher Price/Earnings ratio than SJW, but the numbers are switched when looking at the Price/Sales ratio. The PEG is roughly equivalent.

I returned to the 10-Q filings for each company in the hopes that I would find something that stuck out. Examining the Income Statement for the past three months year over year, I found the Operating Revenue and Net Operating Income to be very similar, and the resulting Diluted Earnings Per Share to have dropped by the exact same percentage.

Moving to the Cash Flows Statement, I thought that I had found a major difference in the nine months year over year comparison when I noted CWT’s large loss in Receivables (whereas SJW had an increase in that column). However, when I got to the bottom of the table I found the Cash and Cash Equivalents to have changed very similar to one another.

One thing I did find on Yahoo Finance was a valuation of each company’s Corporate Governance Quotient. According to this, CWT is is better than 56.6% of Russell 3000 companies and 20.2% of Utilities companies and SJW is better than 98.8% of Russell 3000 companies and 83.9% of Utilities companies. This is a big difference, and something to keep in mind, if only in the back of the mind. The reason I say this is that if you click on the above link and enter “Corporate Governance” into the search engine (including the quotes, so that the full string is evaluated) in an attempt to get an idea as to exactly what Yahoo’s Corporate Governance valuation actually indicates, Yahoo has no idea. So this is potentially good information – I just wish I knew what it meant.

A resource I sometimes use is analyst recommendations. My account at TD Ameritrade offers a number of such reports, so I decided to see if they were willing to help select between these two companies.

I normally look at three reports, Ratings Report, Standard & Poor’s Stock Report, and Ford Equity Research Rating Report. There is no need to go through all of the numbers here, the bottom line pretty much says it all. When I looked at the reports for CWT I saw immediate disagreement – TheStreet suggested a Buy, S&P had no opinion and Ford offered a sell. Looking at SJW I saw pretty much the same, TheStreet telling me to buy, S&P without an opinion, and Ford suggesting a hold. Not as helpful as I would have wished.

Another route I have to taken, in this regard, is research offered through my account at Siebert. It is too bad that they make their login process impossible to remember, or I would use their service much more frequently. One research offering I use on occasion is Validea. It utilizes the valuation methods used by such individuals as Peter Lynch, James O’Shaughnessey, Kenneth Fisher, and others. Although some “gurus” methodologies I do not find useful, I do like their take on looking at a company the way a certain individual might.

As far as Validea was concerned, SJW was certainly the superior company. Of the eight ways at valuing the company, six preferred SJW over CWT, so it appears that there is actually a consensus here.

So at this point I would give SJW one and a half points over CWT – one point for Validea’s consensus, and half a point for the unknown Yahoo Corporate Governance numbers.

Next post I will make my final decision as to which company will be purchased.


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