American States Water's (AWR) Capex, Customer Base Bode Well

American States Water Company’s AWR planned investments in strengthening its aging water infrastructure, a sturdy utility customer base and consistent contribution from its American States Utility Services (ASUS) unit support its operations.

The Zacks Consensus Estimate for 2021 and 2022 earnings is pegged at $2.49 and $2.58 per share each, indicating respective growth of 6.87% and 3.82% from the corresponding year-ago reported figures. American States Water has a trailing four-quarter earnings surprise of 5.02%, on average.

AWR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Shares of American States Water have gained 25.2% in the past year, outperforming the industry’s rally of 8.8%.

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One Year Price Performance

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What’s Aiding the Stock?

American States Water has a solid customer base and is adding electricity and water utility customers at a slow but steady pace through acquisitions and organic means. ASUS has long-term contracts with military bases, which are 50-year fixed-price deals. Prices are determined by the military outfits. The long-term defense contracts lend stability to AWR’s earnings. This unit is expected to contribute to 2021 and 2022 earnings per year in the range of 45-49 cents per share.

AWR invested $106.7 million in the first three quarters of 2021 and plans to spend in the range of $130-$140 million for the whole year on regulated utilities. In July 2020, American States Water’s unit Golden State Water Company filed a general rate case application for all the water regions and also applied for new rates at the general office for 2022, 2023 and 2024. The new application includes capital budget requests of $450.6 million for the 2021-2024 time period and another $11.4 million worth of capital projects will be filed for revenue recovery once the projects are completed.

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. While WTRG and AWK carry a Zacks Rank of 3 at present, CWT holds a Zacks Rank#2 (Buy).

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. The planned investment for the next 10 years suggests an increase of $6 billion from the prior guidance. 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 expenditure planned for 2022, 2023 and 2024 is $355 million, $360 million and $365 million, respectively. In July, CWT’s unit filed an application with the California Public Service Commission, seeking approval for the 2022-2024 infrastructure improvement program, which also contains new rate designs. Per this, the utility aims to invest $1.02 billion in the aforesaid time period.

Headwinds

American States Water’s dependence on a single state (California) for recognizing a significant chunk of its earnings is a huge downside. Also, AWR operates in a highly regulated environment and any changes in the existing laws and conditions could affect its business. The aging water infrastructure and the risk of groundwater contamination could adversely impact its operations too.


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American Water Works Company, Inc. (AWK): Free Stock Analysis Report

 

California Water Service Group (CWT): Free Stock Analysis Report

 

American States Water Company (AWR): Free Stock Analysis Report

 

Essential Utilities Inc. (WTRG): Free Stock Analysis Report

 

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