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California Water (CWT) Strong on Investments & Customer Base

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California Water Service Group’s CWT systematic investments in strengthening its aging water infrastructure along with a sturdy utility customer base act as tailwinds. Also, rate increases are aiding the company’s performance.

The company is currently carrying a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2021 and 2022 earnings per share has improved 3.5% and 6.8%, respectively, in the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tailwinds

With its focus on expanding operations in the Western United States, California Water Service continues exploring new opportunities to expand its regulated and non-regulated water and wastewater activities. For the same, the utility invested $298.7 million in 2020, up from $273.8 million in 2019. Its capital expense estimates for 2021 are $270-$300 million.

The company is undertaking strategic acquisitions and replacement projects to enhance the reliability of its services and broaden its business scope. Such efforts improved its customer base by 4.3% year over year in 2020.

Also, the water utility has been benefiting from rate hikes since the beginning of 2014. Net income increased $4.2 million to $15.5 million owing to the adoption of California Governance, Risk and Compliance (GRC) and lower income tax expenses on repairs deductions for mainline replacements. The ongoing expansion of the rate base will leave a positive impact on the company’s earnings over the long term.

Moreover, the utility boasts ample liquidity to meet its near-term obligations. As of Dec 31, 2020, it had $44.6 million of cash and an additional current capacity of more than $180 million on the lines of credit, subject to meeting its borrowing conditions.

Woes

However, California Water Service’s above 93.8% operations are concentrated in the state itself, exposing it to various risks. Also, its aging water infrastructure requires constant investments in maintaining the reliability of services. Moreover, the risk involving contamination of water supplied by the company is a concern.

Price Performance

In the past three months, the stock has gained 0.4% against the industry’s fall of 3.1%.

Stocks to Consider

Other top-ranked utilities including Black Hills Corporation BKH, NiSource, Inc NI and Korea Electric Power Corporation KEP are presently carrying the same Zacks Rank as California Water Service at present.

Black Hills Corporation has a long-term (three to five years) earnings growth rate of 5.2%. It delivered an earnings surprise of 3.6%, on average, in the last four quarters.

NiSource has a long-term earnings growth rate of 6.2%. It delivered an earnings surprise of 109.2%, on average, in the last four quarters.

Korea Electric Power has a long-term earnings growth rate of 5%. The Zacks Consensus Estimate for 2021 earnings has been revised 3% upward in the past 60 days.

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NiSource, Inc (NI) : Free Stock Analysis Report

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California Water Service Group (CWT) : Free Stock Analysis Report

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