California Water (CWT) to Gain From Investments & Acquisitions
California Water Service Group’s CWT investments in infrastructure will allow it to provide customers with efficient water and wastewater services. The company continues to expand its operations through acquisitions and organic methods, which will further boost its performance.
However, this Zacks Rank #3 (Hold) company faces risks related to changes in regulations and aging water infrastructure.
Tailwinds
The company invested $177.2 million in capital improvements during the first six months of 2023, up 22.5% year over year. The estimated capital expenditure for 2023 and 2024 is $360 million and $365 million, respectively. The company expects to increase capital expenditures in non-California utilities in 2023, owing to recent acquisitions and expansions.
California Water’s primary focus is to expand operations in Western United States and continue to explore new opportunities to expand regulated and non-regulated water and wastewater activities. On the back of improving economic conditions, completed acquisitions and other organic efforts, the company’s customer base is likely to keep witnessing this uptrend in the coming years.
In June 2023, the New Mexico Public Regulation Commission granted approval for New Mexico Water to acquire the assets of Monterey Water Company and provide regulated water utility service to Monterey’s customers. The agreement is expected to add 380 residential customers to its customer base.
In July 2023, Washington Water completed the acquisition of Stroh’s Water Company’s water assets. This acquisition will add 900 customer connections.
Headwinds
California Water operates in a highly regulated environment and any changes in existing laws and conditions could increase its operating costs. There is no assurance that the commission will approve rate increases to cover these additional costs, thereby adversely impacting the company's business.
The aging water infrastructure remains a concern for CWT. Additions and improvement in the existing water infrastructure require huge capital investments. If the company fails to procure the required capital at a desirable rate, it could hamper its operations.
Stocks to Consider
Some better-ranked stocks for investors interested in the industry are American Water Works AWK, American States Water Company AWR and SJW Group SJW, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AWK’s long-term (three to five years) earnings growth rate is 8.18%. The consensus estimate for 2023 earnings per share (EPS) implies a year-over-year increase of 6.2%.
AWR’s long-term earnings growth rate is 6.3%. The consensus mark for 2023 EPS implies a year-over-year improvement of 29.8%.
The consensus estimate for SJW’s 2023 EPS implies a year-over-year increase of 2.1%. The company delivered an average earnings surprise of 21% in the last four quarters.
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
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