American States Water Company (Australia – Strategic investments in upgrades have further strengthened the company’s infrastructure, and the company has a strong utility customer base, which is driving demand for its services.
However, this Zacks Rank #3 (Hold) company is overly reliant on a single state for most of its revenue, which is creating a headwind for it.
Tailwind
American States Water has a solid utility customer base and, most importantly, is slowly but steadily growing its electric and water utility customer base. Strategic capital investments are making the company’s infrastructure stronger and more resilient. AWR expects capital expenditures of $611.4 million from 2025 to 2027.
The company’s subsidiary, American States Utility Services (ASUS), will begin operating water and wastewater systems at two new military bases in April 2024. The company signed a 50-year contract at Naval Air Station Patuxent River with an initial fixed-price estimated at $349 million and a 15-year contract at Joint Base Cape Cod with a maximum fixed-price of $75 million. Long-term defense agreements provide stability to the company’s revenue.
AWR is expected to be successful in bidding for future military base contracts due to its strong track record and experience. ASUS generates additional revenue and profit margins by fulfilling economic price adjustments, equitable adjustment requests, asset transfers, and variance applications awarded and permitted for new projects.
Headwinds
The company continues to focus its services in California, particularly Southern California, and as a result, AWR’s financial performance is subject to significant changes in political, water, labor, utility and regulatory risks, economic conditions, natural disasters and other risk factors affecting the state.
Despite safeguards, water service providers always face the risk of groundwater contamination within their service areas, and American States Water may have to incur additional costs to address potential contamination issues.
Price performance
Over the past month, American States Water shares have fallen 1.3% compared with the industry’s decline of 1.4%.
Stocks to consider
Stocks that rank highly in the same sector include: California Water Services Group (Canada – Free report) and Primo Water (Prime – Both companies currently carry a Zacks Rank #1 (Strong Buy). Aida Corp. (India Development Council – Free Report ) has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CWT’s 2024 EPS indicates year-over-year growth of 246.2%. The company has delivered an average earnings surprise of 85.2% over the past four quarters.
PRMW’s long-term (3-5 year) earnings growth rate is 15.47%, and the company has delivered an average earnings surprise of 9.7% over the past four quarters.
The Zacks Consensus Estimate for IDA’s 2024 EPS indicates year-over-year growth of 4.1%. The company has delivered an average earnings surprise of 6.8% over the past four quarters.
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