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

Zacks Equity Research

California Water Service Group CWT, through its subsidiaries, provides water utility and other related services in the United States.

This Zacks Rank #1 (Strong Buy) firm is a promising bet at the moment, as its strong capital investment plans to strengthen water and wastewater facilities are anticipated to drive performance over the long run.

Growth Projections

The Zacks Consensus Estimate for 2020 earnings is pegged at $1.59 on revenues of $737.4 million. This implies 13.2% and 4% growth in the bottom and the top line, respectively, from the year-ago reported figures.

Its long-term (three to five years) earnings growth rate is projected at 10%.

Capital Investment

California Water’s systematic capital expenditure has been a major driver of rate base. The company, after investing more than $1.6 billion in the last decade, plans to invest $560 million in the 2020-2021 time frame. These investments are directed to strengthen the water and wastewater infrastructure, which allows the company to provide services to customers more efficiently.

Acquisition – Major Part of Growth Strategy

An important component of California Water’s growth strategy is to acquire or invest in other companies, technologies, services or products that complement its existing business. The company did not make any significant acquisitions in the 2016-2018 time period. However, in 2019, it entered into an agreement to acquire four water and wastewater service providers to expand operations.

Consolidation is quite essential for the fragmented water industry, as nearly 50,000 water and 15,000 wastewater operators are providing services in the United States. According to an American Water Works report, nearly 44% of the U.S. pipeline infrastructure will be classified as poor, very poor or life elapsed.

The highly fragmented water industry creates operational challenges in meeting increasing water requirement. Hence, apart from California Water Service, water utilities like American Water Works AWK is actively acquiring small water and wastewater service units, and making required investments to upgrade the quality of services.

Return on Equity (ROE)

California Water Service’s ROE of 9.2%, compared with the industry average of 8.9%, indicates the company’s efficiency in utilizing its shareholders’ funds.

Price Performance

Shares of California Water have outperformed its sector in the past 12 months.

 

 

Other Stocks to Consider

Other top-ranked water utilities include AquaVenture Holdings Ltd. WAAS and The York Water Company YORW. AquaVenture sports a Zacks Rank #1 and The York Water Company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AquaVenture Holdings delivered average positive earnings surprise of 15.6% in the last four quarters. The Zacks Consensus Estimate for  2020 has moved up  5.2% in the past 60 days.

The York Water Company delivered average positive earnings surprise of 2.3% in the last four quarters. The Zacks Consensus Estimate for 2020 has moved up 0.9% in the past 60 days.

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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
 
The York Water Company (YORW) : Free Stock Analysis Report
 
AquaVenture Holdings Ltd. (WAAS) : Free Stock Analysis Report
 
California Water Service Group (CWT) : Free Stock Analysis Report
 
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