American Water Works (AWK) Up 5.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for American Water Works (AWK). Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is American Water Works due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
American Water Q3 Earnings & Revenues Surpass Estimates
American Water Works Company posted third-quarter 2023 operating earnings per share (“EPS”) of $1.66, which surpassed the Zacks Consensus Estimate of $1.55 by 7.1%.
The bottom line improved 1.8% from the year-ago quarter's earnings of $1.63 per share. The year-over-year improvement in earnings was due to the favorable impacts of warm and dry weather, which created demand for water.
Total Revenues
Total revenues of $1,167 million surpassed the Zacks Consensus Estimate of $1,097 million by 6.4%. The top line increased 7.8% from the year-ago figure of $1,082 million.
Segmental Details
Regulated businesses’ revenues in third-quarter 2023 were $1,095 million, up 9.2% from the year-ago quarter’s level. The year-over-year improvement was due to completed general rate cases and infrastructure proceedings for the recovery of incremental capital and acquisition investments.
Other revenues in third-quarter 2023 were $72 million compared with $79 million in the year-ago period.
Highlights of the Release
Total operating expenses for the third quarter were $689 million, up 7.2% from the year-ago quarter’s $643 million due to an increase in operating and maintenance expenses.
The operating income was $478 million, up 8.9% from the year-ago figure of $439 million. The actual operating income was better than our model’s projected operating income of $446.7 million.
American Water Works continues to expand operations through acquisitions and organic means. Through 14 closed acquisitions in six states, it added 7,900 customers to its base as of Sep 30, 2023. AWK’s 32 pending acquisitions (as of Sep 30), when completed, will add another 88,100 customers.
To date, the company has been authorized additional annualized revenues of $273 million from general rate cases in 2023. Further, $86 million of additional annualized revenues from infrastructure surcharges have been authorized and are effective in 2023. Currently, the rate request pending amounts to $194 million, which includes an infrastructure surcharge request of $23 million.
Financial Highlights
Cash and cash equivalents amounted to $628 million as of Sep 30, 2023 compared with $85 million as of Dec 31, 2022.
The total long-term debt was $11,698 million as of Sep 30, 2023, up 6.23% from $10,926 million as of Dec 31, 2022.
During the first nine months of 2023, cash flow from operating activities was $1,347 million compared with $764 million in the year-ago period.
Guidance
American Water Works reiterated 2023 earnings guidance at $4.72-$4.82 per share. The Zacks Consensus Estimate for 2023 earnings of $4.8 per share, a tad higher than $4.77, the midpoint of the company’s guided range.
American Water Works expects its 2024 earnings guidance in the range of $5.10-$5.20 per share. The Zacks Consensus Estimate for 2024 earnings of $5.12 per share, a tad lower than $5.15, the midpoint of the company’s guided range. AWK reiterated long-term earnings and dividend growth in the range of 7-9%.
The company plans to invest nearly $2.9 billion across its footprint in 2023 and expects to invest $3.1 billion in 2024. AWK intends to invest in the range of $16-$17 billion in the 2024-2028 period and $34-$38 billion in the 2024-2033 period.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, American Water Works has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Water Works has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
