American States Water Company’s AWR investments to improve the water infrastructure and a strong credit rating are a tailwind.
Let’s discuss the factors that make this Zacks Rank #2 (Buy) stock a strong investment pick at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Projection & Surprise History
The Zacks Consensus Estimate for 2021 and 2022 earnings per share are pegged at $2.48 and $2.65, suggesting year-over-year growth of 6.44% and 6.85%, respectively.
The Zacks Consensus Estimate for 2021 and 2022 revenues per share are pegged at $508 million and $529 million, suggesting year-over-year growth of 4.05% and 4.13%, respectively.
AWR delivered an average earnings surprise of 5.02% in the last four quarters.
Return on Equity
Return on Equity (ROE) indicates how efficiently AWR is utilizing shareholders’ funds to generate returns. At present, American States Water’s ROE is 14.31%, higher than the industry average of 10.36%.
AWR has been a steady dividend payer and paid out dividends to shareholders every year since 1931 and has increased the same in each calendar year for the last 67 consecutive years. The consistent performance of American States Water helps it continue with its shareholder-friendly move.
AWR intends to hike the dividend, seeing a CAGR of more than 7% over the long term. In July 2021, the board of directors approved a 9% rise in third-quarter dividend, bringing the total to 36.5 cents per share from 33.5 cents. The new annualized dividend of $1.46 per share reflects an increase of 180.8% from the annual dividend of 52 cents paid in 2010. The current dividend yield is 1.48%, better than the Zacks S&P 500 composite’s 1.31%.
Favorable New Rates & Systematic Investments
In July, 2020, GSWC filed a general rate case application for all water regions and the general office for new rates for the years 2022, 2023 and 2024. The new application includes capital budget requests of nearly $450.6 million for the above period and another $11.4 million of capital projects to be filed for revenue recovery through advice letters once those projects are completed. Due to delay, the final decision is not expected in the ongoing year. Therefore, new rates will be retroactively effective Jan 1, 2022. Also, AWR’s water rate increases, which came into effect on Jan 1, 2021, are likely to boost the water gross margin by $11.1 million in 2021.
New rates will help AWR to recover the amount invested in upgrading and improving its infrastructure and continue its infrastructure upgrade initiatives. After investing $106.7 million in the first three quarters of 2021, American States Water expects to invest in the range of $130-$140 million in regulated utilities during 2021. These systematic investments are likely to drive the rate base from $752.2 million in 2018 to $980.4 million in 2021.
Other water utilities also investing heavily in their infrastructure for maintenance, upgrade and enhancement include Essential Utilities WTRG, American Water Works AWK and California Water Service CWT.
In 2021, Essential Utilities aims to invest $550 million in the water segment and $450 million in the natural gas segment. WTRG plans to invest $3 billion from 2021 through 2023 to fortify its operations and efficiently serve the expanding customer base.
American Water Works plans to invest $13-$14 billion in the 2022-2026 time period and $28-$32 billion in the 2022-2031 time frame. For 2022, AWK plansto make a capital investment worth $2.5 billion, with a major portion to be utilized for infrastructure improvements in Regulated businesses.
After investing $298.7 million in 2020, California Water Service spent $207.7 million in the first nine months of 2021 and reaffirmed its 2021 capex estimates within $270-$300 million. Also, the midpoint of CWT’s capital expenditures planned for 2022, 2023 and 2024 is $355 million, $360 million and $365 million, respectively.
Shares of American States Water have gained 21.9% in the past 12 months compared with the industry’s rise of 9.8%
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