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Aqua America Keeps Chugging Along

NEW YORK ( TheStreet) -- For Aqua America (WTR - Get Report), the name of the game is consolidation.

There are 55,000 different water systems in America, making it an extremely fragmented industry. At the same time, the Environmental Protection Agency is tightening its standards for clean drinking water. This creates opportunity as many of these water companies are owned by municipalities that may have a tough time affording the upgrades necessary to meet the new requirements.

That's where Aqua America comes in. It's been snapping up these companies, and while it suffers a temporary setback with each acquisition as it brings them into compliance, the situation usually ends of being profitable.

The water utility company recently purchased 51 water systems in Texas and sold 60 systems in Missouri as it continues to place its focus on growing states and areas with high populations.

The stock is up 23% for the year but analysts are slightly bearish on the company with seven of the 12 analysts covering the shares at either hold (6) or underperform (1).

Some customers are unhappy with rate increases Aqua America has sought but Chief Executive Officer Nick DeBenedictis says the boosts are necessary because the company has to spend millions cleaning up old neglected facilities. TheStreet recently caught up with DeBenedictis at the New York Stock Exchange.

TheStreet: This is a 125-year-old company and you've been on the stock exchange for 40 years, right?

DeBenedictis: Right. There are three celebrations going on here today. It's 125 years since Swarthmore college professors founded the company in Swarthmore, Pa.; 40 years since we've been on the New York Stock Exchange; and I start my 20th year at the helm this year.

I was looking at the numbers and the numbers are quite good. EPS and revenue are growing, the dividend is very healthy, but the stock doesn't seem to be responding. Is that frustrating for you?

DeBenedictis: Well, if you look at it month to month, or day to day, yes. But since I got here, the stock's up 900%. The dividend is up 20 years in a row. So I mean, it's the old tortoise and hare situtation. We're getting to the finish line.

You do have a good point. But when you look back before the financial crisis, though, it was higher and it's really struggled to come back since then.

DeBenedictis: Right. Well, earnings were flat in seven [2007] and eight [2008]. Nine [2009], they started to take off. Ten [2010], we're up 18% and in the first quarter of eleven [2011], we're up 40%, so earnings are really coming back strong.

What is your outlook for the rest of the year?

DeBenedictis: Well, we expect to have another good year in 2011. This will be our 12th straight year of record earnings. We're looking to raise the dividend again this year. That is the board's strategy. We usually try to increase the dividend by 7% each year.

I can't do much more than that, put numbers up on the board. It's a solid business. We're one percent of the market share so we have a lot of room to grow, only a few big companies in the field. All the rest are municipalities, which have no entrepreneurial reason to expand or to consolidate and also now don't have the money with the financial crisis.
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