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American States Water's Stable Capex, Customer Base Bode Well

American States Water Company’s AWR systematic investments in strengthening its aging water infrastructure along with a sturdy utility customer base act as tailwinds.

The company has a trailing four-quarter earnings surprise of 0.15%, on average.

What’s Aiding the Stock?

Golden State Water Company (GSWC), a subsidiary of American States Water Company, invested $53.2 million in the company-funded capital projects during the first half of 2020. The current-year capex guidance is in the range of $105-$120 million. The utility took initiatives to lower expenses and preserve liquidity amid the unprecedented economic distress stemming from the COVID-19 outbreak. Also, the company has a solid utility customer base, and it is increasing its electricity and water utility customer base at a slow but steady pace.

American States Water Company’s Water segment is a major contributor to its total revenues. Notably, the company’s subsidiary American States Utility Services (ASUS) has long-term contracts with 11 military bases. Also, in the first six months of 2020, the unit was awarded $6 million for funding new construction projects to be completed in 2020 and through the remaining of 2021. This unit is expected to contribute 46-50 cents per share to the company’s current-year earnings.

The company’s consistent performance led to cash flow generation, which helps it pay regular dividends to its shareholders. In thefirst six months of 2020, operating cash flows for American States Water have increased to $46.3 million from $44.7 million in the comparable period last year. Courtesy of a stable cash flow, the board of directors in July approved a 9.8% hike in the third-quarter dividend of 33.5 cents per share despite the prevalent pandemic.

Headwinds

American States Water Company’s dependence on a single state for recognizing a significant chunk of its earnings is a huge downside. Also, the company operates in a highly-regulated environment and any changes in the existing laws and conditions could affect its business.

Zacks Rank & Price Performance

Currently, the stock carries a Zacks Rank #3 (Hold). Shares of the company have lost 5.5% in the past month compared with the industry’s fall of 4.9%.

Stocks to Consider

A few better-ranked utilities are Essential Utilities Inc. WTRG, MGE Energy Inc. MGEE and Otter Tail Corporation OTTR, all carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Essential Utilities has a long-term (three to five years) earnings growth rate of 6.01%. It delivered an earnings surprise of 9.67%, on average, in the last four quarters.

MGE Energy has a long-term earnings growth rate of 4.38%. The Zacks Consensus Estimate for 2020 earnings has moved 4.4% north in the past 60 days.

Otter Tail Corporation delivered an earnings surprise of 3.92%, on average, in the trailing four quarters. The Zacks Consensus Estimate for 2020 earnings has been revised 4.7% upward in the past 60 days.

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Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

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American States Water Company (AWR): Free Stock Analysis Report
 
Otter Tail Corporation (OTTR): Free Stock Analysis Report
 
MGE Energy Inc. (MGEE): Free Stock Analysis Report
 
Essential Utilities Inc. (WTRG): Free Stock Analysis Report
 
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