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American Water Works (AWK) Down 0.3% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for American Water Works (AWK). Shares have lost about 0.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Water Works due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

American Water Q4 Earnings Match Estimates, Sales Lag

American Water Works Company posted fourth-quarter 2020 earnings of 80 cents per share, on par with the Zacks Consensus Estimate.

The bottom line improved 48.1% year over year on the back of strong contributions from Regulated businesses. The encouraging quarterly earnings reflect favorable impact of new rates and the benefits derived from its acquired assets.

Total Revenues

Total revenues of $923 million lagged the Zacks Consensus Estimate of $926 million by 0.3% but improved 2.3% from the year-ago figure of $902 million.

Highlights of the Release

Total operating expenses for the quarter were $660 million, down 2.7% from the year-ago period.

Operating income was $263 million, 17.4% higher than the year-ago figure. New rates approved in the year added $151 million to annual revenues and the pending rate case, if approved without any change, will further increase the top line by $208 million.

The company continues to expand operations through acquisitions and organic means. In 2020, it successfully closed 23 acquisitions via adding 37,800 customers to the customer base and expanding operations in the United States. Its pending 27 acquisitions (as of Jan 31), when completed, will add another 29,800 customers to the customer base.

For the 12-month period ended Dec 31, O&M efficiency improved to 34.3% from 34.5% in the year-ago period. The improvement was due to persistent focus on operating costs and an increase in operating revenues from Regulated businesses.

Segment Details

Regulated businesses’ net income was $154 million compared with $152 million in the year-ago quarter. The company continues to expand operations through acquisitions, which will likely boost regulated earnings by 1.5-2.5% in the 2021-2025 time frame.

Market-Based businesses’ net income was $23 million against a loss of $18 million in the year-ago period.

Financial Highlights

Cash and cash equivalents amounted to $547 million as of Dec 31, 2020, up from $60 million in the corresponding period of 2019.

Total long-term debt was $9,329 million as of Dec 31, 2020, higher than $8,644 million at 2019-end.

Cash flow from operating activities for 2020 was $1,426 million compared with $1,383 million in the year-ago period. For the same period, capital expenditure was $1,822 million compared with $1,654 million in the year-ago period.

Guidance

American Water expects 2021 earnings in the range of $4.18-$4.28 per share. The company’s long-term earnings growth is expected in the range of 7-10% for the 2021-2025 period.

It aims to invest $10.3-$10.5 billion over the 2021-2025 time frame. The company has plans to invest $22-$25 billion of capital over the 2021-2030 time period.

Subject to approval of the board of directors, dividend growth for the 2021-2025 period is expected at the high end of the 7-10% range. Its O&M efficiency target remains at 30.4% for 2025.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, American Water Works has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 this revision indicates a downward shift. Notably, American Water Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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