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Why Is American Water Works (AWK) Up 4% Since Last Earnings Report?

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  • AWK

It has been about a month since the last earnings report for American Water Works (AWK). Shares have added about 4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Water Works due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

American Water Beats on Q2 Earnings, Adds Customers

American Water Works Company posted second-quarter 2021 earnings of $1.14 per share, beating the Zacks Consensus Estimate of $1.08 by 5.6%.

The bottom line also improved 17.5% year over year on the back of strong contribution from Regulated businesses. The strong quarterly earnings reflect the favorable impact of infrastructure investments, acquisitions and organic growth.

Total Revenues

Total revenues of $999 million surpassed the Zacks Consensus Estimate of $972 million by 2.8% and improved 7.3% from the year-ago figure of $931 million.

Highlights of the Release

Total operating expenses for the quarter were $669 million, up 8.3% from the year-ago period.

Operating income was $330 million, up 5.4% from the year-ago figure. New rates effective since Jan 1, 2021 will add $146 million to annual revenues. The pending rate case, if approved without any change, will further increase the top line by $71 million.

The company continues to expand operations through acquisitions and organic means. Till Aug 1, 2021, it added 11,200 customers to the customer base through acquisitions and organic growth initiatives. Its pending acquisitions (as of Aug 1), when completed, will add another 86,900 customers to the customer base.

For the 12-month period ended Jun 30, O&M efficiency improved to 33.9% from 34.3% in the year-ago period. The improvement was due to persistent focus on operating costs and an increase in operating revenues from Regulated businesses.

Segment Details

Regulated businesses’ net income was $215 million compared with $177 million in the year-ago quarter. The company continues to expand operations through acquisitions, organic initiatives and increase in demand.

Market-Based businesses’ net income was $19 million compared with $23 million in the year-ago period.

Financial Highlights

Cash and cash equivalents amounted to $70 million as of Jun 30, 2021, down from $547 million on Dec 31, 2020.

Total long-term debt was $10,346 million as of Jun 30, 2021, up from $9,333 million at 2020-end.

Cash flow from operating activities for first-half 2021 was $520 million compared with $531 million in the year-ago period. For the same period, capital expenditure was $752 million compared with $870 million a year ago.

Guidance

American Water reiterated its 2021 earnings guidance in the range of $4.18-$4.28 per share. The company’s long-term earnings growth is expected in the range of 7-10% for the 2021-2025 period.

It aims to invest $10.4 billion over the 2021-2025 time frame and $22-$25 billion in 10 years. The company’s O&M efficiency target remains at 30.4% for 2025.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, American Water Works has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Water Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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