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California Water Service to Invest $828M in Infrastructure

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California Water Service Group CWT announced that its subsidiary California Water Service (Cal Water) has filed an application with the California Public Utilities Commission, seeking permission for investing $828.5 million within the 2019-2020 time frame.

The investment will be utilized to strengthen the existing water infrastructure by replacing and upgrading the old transmission and distribution pipelines. The upgrades will help the company to deliver safe, reliable, and high-quality water to existing customer base, and also provide sufficient water for emergency needs.

Cal Water has proposed to the Commission to increase revenues by $51.0 million or 7.7% for 2020; $29.8 million or 4.2% for 2021; and $31.4 million or 4.2% for 2022 compared to the last authorized revenues.  If approved by the Commission, the water rates will increase by less than $5 per month in nearly 75% of the Cal Water service territories.

The regulated water utilities depend on utility commissions for getting approval in water rate hikes. The rate hikes at regular intervals allow the water utilities to continue with their plans to strengthen existing assets.

Water Industry Needs Investment

The U.S. water infrastructure in quite old, and massive investment is required to upgrade the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Replacement of old transmission mains and upgradation of treatment plants require investment of billions of dollars for improving the water infrastructure.

Water utility American Water Works AWK plans to invest in the range of $1.9-$2.1 billion for capital expenditures and acquisitions. The company aims to invest $8.0-$8.6 billion from 2018 through 2022, which will help to improve earnings by 7-10% per year in the aforesaid period from a 2016 base.

Another water utility Aqua America WTR aims to invest more than $1.4 billion in the 2018-2020 time frame.
Price Movement

California Water Service’s shares have returned 9.9% in the past year, outperforming the 2.5% growth of the industry it belongs to.

Zacks Rank & A Key Pick

Currently, California Water Service Group has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Global Water Resources Inc. GWRS, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Global Water Resources’ long-term EPS is expected to grow 15%. The consensus estimate for 2018 has moved up 21.4% to 17 cents in the past 60 days.

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