Promising Investment Opportunities Gushing From California's Epic Water Crisis

Major U.S. Water Players

California governor's mandate to reduce potable water usage by 25% through Feb. 2016 and the $7.1 billion bond approval in the November 2014 election should provide meaningful revenue to water-related companies in the long-term, David Rose, senior vice president of Water and Renewable Energy Solutions at Wedbush Securities in Los Angeles, wrote in a report Apr. 2.

Rose stated: "We believe in the near-term, the beneficiaries are likely to be companies that are focused on urban/residential water efficiency, such as Toro (TTC) that offers drip irrigation systems.

"On the commercial side, Rexnord (RXN) may see some small benefit in its Zurn business from its water efficient plumbing. We believe in the near-term, water-focused engineering and consulting firms such as Tetra Tech (TTEK) may see some pickup in business as the state and local governments look for water conservation and reuse strategies.

"Over the next 12 months and longer, we believe companies that address water conservation and reuse will be the largest beneficiaries. As the municipalities focus on water reduction, they will likely move toward tiered rate structures, while also trying to reduce non-revenue water (difference from what is supplied and what is sold to the customer).

"Non-revenue water is a result of water loss as well as inaccurate billing, all of which can be addressed by Mueller Water Products (MWA). Mueller supplies advanced water metering, leak detection, and pipe condition assessment products. As it relates to water reuse, we believe Xylem (XYL) is best positioned with its complete offering of pumps, disinfection systems, and analytics. The company already has an offering of small- scale water reuse systems that can ideally serve municipalities to treat wastewater to potable water standards.

"Pentair (PNR) also some product offerings that could see some benefit, though it is a much smaller part of its business. Longer-term, we believe desalination will also be an opportunity, but the projects can take as long as 10 years to move forward. Companies that participate here are Xylem, Pentair, Flowserve (FLS) and Energy Recovery (ERII)."

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