American States Water AWR is poised for growth, courtesy of long-term defense contracts and the possession of significant groundwater and surface water rights, which lower its dependence on other suppliers.
Growth Projections: The Zacks Consensus Estimate for 2019 earnings per share is pegged at $2.11 on $464 million revenues. The bottom and top lines indicate a 22.67% and 6.22% year-over-year increase, respectively.
The consensus mark for 2020 earnings is pegged at $2.17 per share on revenues of $476 million. The bottom and top lines suggest a 2.84% and 2.29% year-over-year improvement, respectively.
Earnings Surprise & Estimate Revisions: The company delivered average positive surprise of 5.91% in the last four quarters.
The Zacks Consensus Estimate for earnings for the current year and 2020 has been revised 6% and 2.4% upward, respectively, over the past 60 days. American States Water has an expected long-term (three to five years) earnings growth of 8%.
Water Rights & Long-Term Contracts: A major portion of the company’s total revenues comes from the Water segment. Notably, it is quite essential for a water service provider to have ample water rights. As of Dec 31, 2018, the company had adjudicated groundwater rights and surface water rights of 73,431 and 11,335 acre-feet per year, respectively.
Its subsidiary, American States Utility Services (ASUS) has long-term contracts with 11 military bases. The long-term defense contracts provide stability to earnings and offer ample visibility into the financial performance of the utilities.
Return on Equity (ROE) and Strong Credit Rating: American States Water’s ROE is 13.04% compared with the industry average of 9.33%. This indicates the company’s efficiency in utilizing its shareholders’ funds.
American States Water possesses some of the strongest credit ratings in the water utility space. Capital-intensive water utility companies need to approach capital markets to fund their projects, as cash flows are often insufficient to meet their requirements. We believe that the strong credit ratings will help the company secure funds from the markets served amid favorable conditions.
The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of American States Water have gained 47.8% in the past 12 months versus the industry and S&P 500 Index’s 38.8% and 2.2% growth, respectively.
Price Performance (One Year)
Other Key Picks
Other top-ranked stocks in the same sector include The York Water Company YORW, Alliant Energy Corporation LNT and IDACORP, Inc. IDA. All the stocks carry a Zacks Rank #2.
The York Water’s 2019 earnings estimates have moved up 1.8% over the past 60 days to $1.13 per share. It delivered average four-quarter positive earnings surprise of 0.77%.
Alliant Energy’s earnings estimates for the current year have been upwardly revised by 0.4% over the past 60 days to $2.26 per share. The company’s long-term earnings growth rate is projected at 5.5%.
IDACORP’s earnings estimates for 2019 have moved 0.5% upward over the past 60 days to $4.48 per share. The firm delivered average positive earnings surprise of 7.79% in the trailing four quarters.
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