American States Water's (AWR) Investments to Boost Portfolio
American States Water Company’s AWR systematic investments in strengthening its aging water infrastructure, sturdy utility customer base and strong credit ratings act as tailwinds.
The company has a trailing four-quarter positive earnings surprise of 5.92%, on average.
What’s Aiding the Stock?
Golden State Water Company (GSWC), a subsidiary of American States Water, invested $23.2 million in the company-funded capital projects during the first quarter of 2020 and further expects an annual investment of $115-$130 million, unless the company needs to revise its expenditures due to the COVID-19 outbreak.
The company is increasing its electricity and water utility customer base at a slow but steady pace. Further, the California Public Utilities Commission (CPUC) approved GSWC water general rate case, effective Jan 1. This hike is expected to generate an additional $10.4 million in gross margin for 2020 compared with the gross margin of 2019. CPUC’s final decision on the general rate case, issued last May, also allows an extra raise of $11.4 million in 2021.
A major portion of American States Water Company’s total revenues comes from its Water segment and it is quite essential for a water service provider to have ample water in reserve. Notably, the company’s subsidiary, American States Utility Services (ASUS), has long-term contracts with 11 military bases. During 2019, ASUS was awarded $23-million worth new construction projects, to be completed through 2020. Via these significant contract wins, the unit is expected to contribute 46-50 cents per share to the company’s earnings in 2020.
Headwinds
However, American States Water’s dependence on a single state (California) for generating a significant chunk of earnings is a huge downside. Also, the company operates in a highly-regulated environment and any changes in the existing laws and conditions could affect its business.
Zacks Rank & Price Performance
Currently, the stock carries a Zacks Rank #3 (Hold). Shares of the company have lost 7.9% in the past six months compared with the industry’s decline of 4.5%.
Key Picks
A few better-ranked stocks in the same sector ar eEssential Utilities Inc. WTRG, Fortis Inc. FTS and DTE Energy Company DTE, all carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Essential Utilities’ long-term earnings growth(three to five years) rate is pegged at 5.91%. Also, the company has a trailing four-quarter positive earnings surprise of 3.18%, on average.
The Zacks Consensus Estimate for Fortis’ 2020 earnings has moved 1.04% north over the past 60 days. It has a trailing four-quarter positive earnings surprise of 6.28%, on average.
The long-term earnings growth rate for DTE Energy is pegged at 5.53%. The Zacks Consensus Estimate for 2020 earnings has been revised 0.31% upward over the past 60 days.
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