California Water Service Group’s CWT expanding infrastructure will help it provide customers with efficient water and wastewater services. The regulated and non-regulated business model, along with acquisitions, will further boost its performance.
CWT - which currently carries a Zacks Rank #3 (Hold) - faces risks related to changes in regulations and aging water infrastructure.
California Water invested $82 million in capital improvements during first-quarter 2023. The estimated capital expenditure for 2023 and 2024 is $360 million and $365 million, respectively.
CWT’s customer base is likely to witness an uptrend in 2023 due to continued acquisitions and organic efforts. Multiple acquisitions completed by the company would add more than 6,700 customers to its existing base.
The consistent performance of the company helps it continue with its shareholder-friendly moves. In April 2023, it declared a quarterly dividend of 26 cents per share, marking the utility’s 313th consecutive quarterly dividend. CWT’s times interest earned ratio was 2.4 at the end of the first quarter of 2023, which indicates that it has ample liquidity to meet its near-term obligations.
California Water operates in a highly regulated environment and any changes in existing laws and conditions could increase the operating costs. There is no assurance that the commission would approve rate increases to cover these additional costs, thereby adversely impacting the company's business.
The aging water infrastructure, risk of contaminated water supply and changes in demand due to weather conditions are other major concerns that might damage the utility’s financial condition and reputation.
Stocks to Consider
Some better-ranked utilities in the same sector are NiSource NI, Global Water Resources GWRS 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.
The Zacks Consensus Estimate for NiSource, Global Water Resources and SJW Group’s 2023 earnings per share indicates year-over-year growth of 6.8%, 29.2% and 2.1%, respectively.
NiSource, Global Water Resources and SJW Group delivered an average earnings surprise of 0.5%, 50.8% and 12%, respectively, in the last four quarters.
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