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CWT or AWR: Which Water Utility Stock is a Better Pick?

Zacks Equity Research

The U.S. water infrastructure is quite old, and massive investment is required to fix the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Per an American Water Works Association (“AWWA”) report, the cost of restoring aging underground water pipelines in the United States will be at least $1 trillion over the next 25 years.

All the regulated water utilities are investing to strengthen operation and recoup the same through rate hikes. The demand for potable water and wastewater services is steadily increasing, in turn creating ample opportunities for growth and expansion of the industry.

There are more than 53,000 water systems in the United States, providing water solutions to customers. The highly fragmented water industry creates operational challenges in meeting increasing requirement for water. Hence, consolidation in the fragmented industry and regular investments are need of the hour to extend quality services to customers.

Against this backdrop, we run a comparative analysis on two water utilities — California Water Service Group CWT and American States Water Company AWR — to ascertain which one performed better and is a suitable investment option right now.

Both the stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Market capitalization of California Water Service is $2.54 billion and the same for American States Water is around $2.59 billion.

Earnings Surprise

California Water Service generated fourth-quarter 2018 operating earnings of 32 cents per share, which beat the Zacks Consensus Estimate of 28 cents by 14.3%.

American States Water generated fourth-quarter 2018 operating earnings of 37 cents per share, in line with the Zacks Consensus Estimate.

Debt/Capital

California Water Service Group and American States Water’s debt/capital ratio stands at 49.30% and 40.28% compared with its industry’s average of 43.05% and Zacks S&P 500 composite’s 41.54%.

Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for California Water Service and American States Water is 8.58% and 11.70%, respectively, compared with the
the industry average of 9.52%.

Estimates Movement

In the past 30 days, the Zacks Consensus Estimate for California Water Service’s 2019 earnings has been downwardly revised by 1.4% to $1.40 per share.

The Zacks Consensus Estimate for American States Water’s 2019 earnings remained unchanged over the past 30 days at $2.00 per share.

Price Movement

Shares of American States Water and California Water Service have gained 27.7% and  37.6%, respectively, compared with the industry’s 19.6% rally in the past 12 months.

One-Year Price Performance


The Verdict

California Water Service and American States Water are comparable operators in the U.S. water industry, owing to their current market capitalization.
 
However, our verdict goes to American States Water, given its better ROE and lower debt to capital ratio than California Water Service.

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California Water Service Group (CWT) : Free Stock Analysis Report
 
American States Water Company (AWR) : Free Stock Analysis Report
 
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