Goldman Sachs: Newly Public Evoqua Water Technologies Leads Fragmented Market

Evoqua Water Technologies Corp (NYSE: AQUA) is No. 1 in water treatment market share in North America, according to Goldman Sachs.

A new initiation report said the company is positioned favorably to capitalize on steady end-market growth through share gains, international expansion and M&A activity.

The Analyst:

Brian Lee of Goldman Sachs intiated coverage on Evoqua Water with a Neutral rating and $22 price target.

The Thesis:

Evoqua Water Technologies' primary exposure is to the $10 billion North American water treatment market, Lee said. (See Lee's track record here.) 

Although the newly public company is the market leader in many key verticals, its largest market share position in any single vertical does not top 20 percent, suggesting opportunities to further penetrate its installed base and grow share, Lee said. 

“Additionally, we see international expansion and M&A creating significant upside opportunity for AQUA to further penetrate the broader $85 billion global market for its products and services,” the analyst said. 

Another key catalyst for the company is the water-as-a-service offering WaterOne, which is currently in a pilot program. This offering could have longer-term potential to increase EBITDA by as much as 4-15 percent, according to Goldman Sachs. 

“We see AQUA as having a higher degree of visibility from service-oriented sales and expect AQUA to trade above these peers’ multiples — even if growth is in a similar range over the next year years,” Lee said. 

Price Action:

Evoqua shares dropped 3 percent on Monday, at last check trading at $21.32.

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