California Water Service Group’s CWT subsidiary — California Water Service (Cal Water) — received approval from California Public Utilities Commission (CPUC) to acquire the water distribution assets of Travis Air Force Base from the U.S. Department of Defense. The decision from the Commission also enables the company’s unit to provide water utility service to the base for a term of 50 years.
Cal Water plans to invest $12.7 million over the first five years and $52 million over the next 50 years on infrastructure upgrade and proper maintenance of the existing system in the Air Force Base.
The contract provides an opportunity for California Water Service to expand its business in a new market. We believe that the company will try to provide water service to other defense bases. However, winning contracts from military bases is hard as there is high competition in the market. For example, water utility companies like American Water Works Company AWK and American States Water Company AWR are already providing services in 14 and 11 military bases under 35 to 50 year contracts, respectively.
Infrastructure Improvements and Investments
The U.S. water infrastructure is outdated and requires regular maintenance and upgrade. To deliver safe, reliable and high-quality water to users, regular investment is mandatory. California Water Service Group is involved in providing regulated water and wastewater services in four states. Cal Water is making investments to deliver high-quality water services to customers of California.
On Jul, 2018, Cal Water filed an application to CPUC to invest $828.5 million within the 2019-2020 time frame. This investment plan includes a proposal of $4.7 million revenue increase over 2020, 2021 and 2022 for Travis district. The new contract will contribute to the company’s top-line for the next 50 years.
California Water Service’s shares have returned 11.2% in the past 12 months compared with the 0.9% rise of the industry.
Zacks Rank & a Key Pick
Currently, California Water Service has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A better-ranked stock from the same sector is Ameren Corporation AEE. The stock carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for 2018 earnings for Ameren moved up 3.7% in the past 90 days. The company came up with a positive earnings surprise of 17.19% in the last quarter.
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