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4 Reasons to Add California Water (CWT) to Your Portfolio Now

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Zacks Equity Research
·3 min read
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California Water Service Group’s CWT steady capital investments are strengthening its existing infrastructure. Acquisitions are further helping it expand footprint in the United States.

Let’s focus on the factors that make this Zacks Rank #1 (Strong Buy) stock a strong investment pick at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.

Growth Projections & Earnings Surprise

The Zacks Consensus Estimate for 2020 earnings per share and revenues is pegged at $1.77 and $789 million, respectively. The bottom- and top-line estimates suggest a 35.11% and 10.42% increase, respectively, from the year-ago level.

California Water’s earnings surprise was 70.18% in the last reported quarter.

Return on Equity and Debt to Capital Ratio

Return on Equity (ROE) indicates how efficiently a company is utilizing shareholders’ funds to generate returns. At present, its ROE is 11.56%, higher than the industry average of 10.32%.

The company’s total debt to capital ratio is 57.04 compared with the sector average of 61.03. This indicates that it is managing the business far more efficiently than peers in the same sector.

Its times interest earned ratio at the end of third-quarter 2020 was 3.1, up from the fourth-quarter 2019 level of 2.4. The strong ratio indicates that the company will be able to meet debt obligations in the near future without any difficulties.

Regular Investments

California Water makes consistent investments to upgrade and maintain the existing water as well as wastewater infrastructure for providing reliable services to the customer base. The company has increased capital expenditure regularly over the past five years.

It has already invested $221.3 million in the first nine months of 2020 and aims to invest in the range of $260-$290 million in 2020. For 2021, the company aims to invest $290 million (midpoint of the expected range) in 2021.

Acquisitions Aid in Expanding Its Footprint

An important element of the company’s growth strategy is the acquisition of water and wastewater systems. California Water is working on this strategy to expand operations. On Jun 1, the company completed the acquisition of Rainier View Water, which added 18,500 water connections. On Nov 3, it acquired Kalaeloa Water that added 220 connections.

Other pending and announced acquisitions, when completed, will expand the company’s customer base by another 8,640 connections.

Price Performance

In the past three months, the stock has gained 11.2% compared with the industry’s rally of 8.9%.

 

 

Other Stocks to Consider

Other top-ranked stocks in the same space include PNM Resources PNM, Portland General Electric Company POR and Pinnacle West Capital PNW, each currently holding a Zacks Rank #2.

PNM Resources, Portland General Electric and Pinnacle West Capital delivered an average earnings surprise of 9.3%, 98.1% and 27.2% in the last four quarters, respectively.

The Zacks Consensus Estimate for 2020 earnings for PNM Resources, Portland General Electric, and Pinnacle West Capital has moved up 2.7%, 1.8%, and 7.5%, respectively, in the past 60 days.

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