Essential Utilities: The Merger Ate the Guidance

WTRG stops reaffirming long-term EPS as the American Water close nears — and the data-center and PFAS stories go quiet.

WTRG · Earnings Call · 2026-11-04

The guidance that vanished

For a utility that has spent years selling a 5%-7% EPS growth algorithm, the most important sentence on Essential Utilities' Q3 call was what it did not say. The press release did not reaffirm long-term guidance. Analyst Paul Zimbardo asked directly whether that was a change. CEO Chris Franklin answered:

to give earnings per share guidance just doesn't make a whole lot of sense. We feel very confident that the transaction will close early in the new year. And how the business is financed will be largely up to the combined team, the combined Board and management team.
Christopher Franklin, Chief Executive Officer · 2026-11-04

Translation: until the American Water merger closes, the successor board and management will own the financial plan. That is not a small housekeeping item. It removes the number that anchored the equity story while the company is asking shareholders to wait for a first-quarter 2027 close. The stock has already voted: WTRG is up 17.8% over the last 90 trading days, a straight up-17-week move, per the tape. That looks more like merger de-risking than an operating re-rating. The quarter itself was solid but not spectacular. GAAP EPS was $0.36, up 9%; adjusted EPS was $0.38, excluding about $0.02 of merger-related expenses. O&M fell 0.6% despite $4.9 million of merger costs, helped by a $3.5 million stop-loss insurance recovery and lower bad debt. That is good cost control. But the last filed 10-Q (Q2) shows net income of $106 million, down 2% year over year on revenue up 3%. The operating base is steady, not accelerating.

Regulatory progress, at a discount

The merger approval process is genuinely advancing. Essential has secured approvals in Kentucky, Ohio and Virginia; settlements in Pennsylvania, North Carolina and Texas remain subject to final PUC approvals. Chris said: “we continue to expect the merger to close by the end of the first quarter in 2027” — Christopher Franklin, Chief Executive Officer · 2026-11-04. On the rate side, 2026 finalized cases and surcharges represent $70.5 million of incremental annualized revenue. Pending water cases in five states seek $78.5 million. The Pennsylvania gas case is the big one: requested $163.2 million, but the administrative law judge recommended about $105 million. Dan Schuller said the “ALJ has recommended a revenue increase of approximately $105 million” — Daniel Schuller, Chief Financial Officer · 2026-11-04. That is a real gap, though not a surprise in Pennsylvania. A new ROE working group could improve the process; it does not change the near-term outcome. This is why Public Utility Commission proceedings remain the swing factor. Prior calls used statutory time line as the merger clock; that clock now points to Q1 2027, consistent with August's language of being “comfortably in that first quarter range for closing” — Christopher Franklin, Chief Executive Officer · 2026-08-05.

The acquisition engine — and the themes that went quiet

Business development has not stopped for the merger. Essential signed asset purchase agreements totaling about $290 million, expected to serve roughly 208,000 customers, including the DELCORA wastewater transaction still stayed in bankruptcy. The active pipeline is about 400,000 potential customers. That is the same municipal consolidation story WTRG has told for years, now with wastewater assets front and center. What is missing is more interesting. In Q1 2025, data centers was the company's top keyword; in Q2 2025 it was still a major theme as management discussed behind-the-meter generation and PJM shortages. On this call, data centers do not appear in management's prepared remarks or Q&A. Similarly, PFAS project spending was the No. 2 theme in Q1 2026. On this call, PFAS comes up only because an analyst asks about a 3M personal-injury settlement. Chris replied: “I'm not sure we're -- we have any thoughts on any new news from yesterday yet” — Christopher Franklin, Chief Executive Officer · 2026-11-04. A year ago the answer was “we're full speed ahead. ... $450 million will be complete by 2028” — Chris Franklin, Chief Executive Officer (CEO) · 2025-05-12. The capex program may be unchanged, but the narrative has been subsumed by the merger. That matters because data centers and PFAS were the growth-optionality stories that justified a premium multiple.

What the tape is saying

WTRG's 90-day move is strong, but the full tape still shows a stock 16.5% below its 2020 peak. The last filed quarter carried interest coverage of 2.2x, and debt has climbed to $8.4 billion. At 19.6x net income, the market is paying for merger completion and regulatory execution, not for an operating surprise. The risk is binary-ish: a Q1 2027 close would validate the move; a delay or a bad Pennsylvania order would expose how much of the 90-day rally was deal arb. The honest read: Essential is a well-run, 140-year-old utility executing a merger of equals in a constructive but demanding regulatory environment. The quarter was fine. The guidance withdrawal is the signal. And the silence on data centers and PFAS is the tell that the company's story is now a closing story, not a growth story.