Essential Utilities slapped with strong sell report from Spruce Point

Essential Utilities (NYSE:WTRG) shares push past breakeven after tumbling 3.5% at the open following the release of a negative report from short seller Spruce Point Capital, which sees a 35%-50% downside risk to the current stock price.

Essential Utilities (WTRG) is "at the declining phase of its aggressive roll-up growth strategy after completing the levered acquisition of Peoples Natural Gas in March 2020," according to Spruce Point, which warned of "exploding bad debts and a persistent decline in the company's cash flow generation while a number of troubling financial reporting issues emerge."

Among various criticisms, Spruce Point said the company has stacked its board with executives lacking experience in water or natural gas, and claimed the audit chairman "once advised an alleged fraud and Ponzi-like scheme and that the company's stock has also been promoted by a Ponzi scheme."

Essential Utilities (WTRG) recently reported Q4 GAAP earnings of $0.44/share on revenues of $705M.