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American Water's (AWK) Arm Files for New Rates in California

Zacks Equity Research

American Water Works’ AWK arm, California American Water has filed an application with the California Public Service Commission, seeking approval to set new rates in each of its service areas from 2021 through 2023. Subject to approval of the commission, the new rates will take effect from Jan 1, 2021.

This filing seeks to increase revenues by $46.5 million over three years, beginning with a $26 million increase proposed for Jan 1, 2021. Rate hikes at regular intervals are quite essential, as these provide American Water with necessary funds to continue with water infrastructure upgrade work. The request also seeks $197 million for infrastructure improvements in the 2021-2022 time period in the service territories of California American Water. In the 2018-2019 time period, the company plans to invest $103 million in infrastructure replacements and improvements.

Systematic Investments Will Help Water Utilities

Per latest assessment from the U.S. Environmental Protection Agency, water utilities in the country will need to make infrastructure investment of more than $384 billion by 2030 to ensure public health. The old and aging water mains and infrastructure are resulting in the wastage of millions of gallons of potable water each year. Water utilities are making efforts to expand, upgrade, and maintain water and wastewater infrastructure.

American Water and its subsidiaries in different states are making concerted efforts to improve the quality of water and wastewater services that it provides to the existing and expanding customer base. American Water aims to invest within $8-$8.6 billion from 2019 through 2023. This investment target is part of the company’s long-term investment plan.

California Water Service, a unit of California Water Service Group CWT — another water utility operating in the state — had filed an application with the California Public Utilities Commission last year, seeking permission for investing $828.5 million within the 2019-2020 time frame.

Price Movement

Shares of American Water have outperformed the industry on a year-to-date basis.

Zacks Rank and Other Key Picks

Currently, American Water has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other top-ranked water utility stocks in the same space include Middlesex Water Company MSEX and Global Water Resources, Inc. GWRS.

Middlesex Water, sporting a Zacks Rank #1, delivered average positive earnings surprise of 19.72% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 5.8% and 4.7%, respectively, in the past 60 days.

Global Water Resources, which has a Zacks Rank #2, reported average positive earnings surprise of 39.58% in the last four quarters. Its long-term (three to five years) earnings growth is projected at 15%. The Zacks Consensus Estimate for 2019 has moved up 15.4% in the past 60 days.

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