A month has gone by since the last earnings report for Essential Utilities (WTRG). Shares have lost about 3.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Essential Utilities due for a breakout? 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.
Essential Utilities Q1 Earnings Miss Estimates, Sales Up
Essential Utilities Inc. reported first-quarter 2023 operating earnings per share (EPS) of 72 cents, which lagged the Zacks Consensus Estimate of 74 cents by 2.7%. The bottom line also missed the year-ago quarter’s earnings of 76 cents by 5.3%.
Earnings gained from rates and surcharges and regulated water segment customer growth, which were offset by decreased regulated natural gas segment volume and other items.
First-quarter operating revenues of $726 million surpassed the Zacks Consensus Estimate of $712 million by 2%. Total revenues improved 3.9% year over year.
Highlights of the Release
Essential Utilities continues to expand operations through acquisitions. On Mar 31, 2023, the company’s subsidiary, Aqua Pennsylvania, acquired the North Heidelberg Sewer Company and added nearly 270 wastewater customers.
Essential Utilities has signed eight purchase agreements to acquire nine additional water and wastewater systems that are expected to serve 219,000 retail customers or equivalent dwelling units for $380 million.
The company invested nearly $243.7 million in the first quarter of 2023 to improve its regulated water and natural gas infrastructure systems and to enhance customer service across its operations.
In 2023 so far, the company’s regulated water segment has received rate awards or infrastructure surcharges in Illinois, Indiana, Ohio and Virginia of $3.6 million.
Operation and maintenance expenses for the first quarter were $137.9 million, down 3.3% from the year-ago figure of $142.6 million.
Operating income was $225.5 million, down 0.9% year over year.
Interest expenses increased 35.4% to $72.7 million from $53.6 million in the year-ago quarter.
Current assets were $509.8 million as of Mar 31, 2023, compared with $658.2 million as of Dec 31, 2022.
Long-term debt was $6,484.5 million as of Mar 31, 2023, higher than $6,371.1 million as of Dec 31, 2022.
Essential Utilities reaffirmed its 2023 earnings in the range of $1.85-$1.90 per share. The mid-point of the guidance range is a tad higher than the Zacks Consensus Estimate of $1.86 per share.
The company expects its customer base in the water segment to expand 2-3% on acquisitions and organic customer growth.
Essential Utilities also plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve the water and natural gas systems and better serve customers using improved information technology.
The company expects a compound annual growth rate of 6 to 7% through 2025 and 8 to 10% through 2025 for its regulated water and regulated natural gas segments, respectively.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
At this time, Essential Utilities has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Essential Utilities has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Essential Utilities belongs to the Zacks Utility - Water Supply industry. Another stock from the same industry, California Water Service Group (CWT), has gained 1.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
California Water Service Group reported revenues of $131.1 million in the last reported quarter, representing a year-over-year change of -24.2%. EPS of -$0.40 for the same period compares with $0.02 a year ago.
California Water Service Group is expected to post earnings of $0.91 per share for the current quarter, representing a year-over-year change of +152.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +26.4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for California Water Service Group. Also, the stock has a VGM Score of D.
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