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American States Water (WTR) in Pursuit of Organic Growth

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On Jun 14, 2016, we initiated coverage on fresh water and wastewater service provider American States Water Company (AWR - Free Report) . An expanding customer base, extensive water rights and strong credit ratings are the company’s current strength. However, dependence on a single state for the majority of its earnings and highly regulated operations could adversely impact results.

American States Water’s earnings per share and total revenues in the first quarter of 2016 were lower than the Zacks Consensus Estimate. The lower-than-expected performance was primarily due to disappointing contribution from its Water and Contracted Services segments.

However, the company is increasing its electricity and water utility customer base at a slow but steady pace. The steady expansion of the customer base through organic means bodes well for the long-term growth prospects of the company.

American State Water is not so active like some of its peers on the acquisition front, particularly with respect to its water utility operations. So, there is a lot of room for growth,  both in customer expansion and infrastructure development, through inorganic means.

American States Water Company has been a steady dividend payer. The company's steady performance allows it to maintain its shareholder friendly moves.  The Jul 2015 increase in the quarterly dividend rate marked 61 years of consecutive dividend hikes from the company.

The company is primarily focused on a single state, California, precisely in Southern California. So, the financial performance of the company to a large extent is dependent on the political, water supply, labor, utility cost and regulatory risks, economic conditions, natural disasters and other risks affecting the state.

American States Water Company operates in a highly regulated environment. In addition, fluctuating weather conditions  have an adverse impact on utility demand.  Despite safety measure, the company also runs the risk of groundwater contamination in its service territories. The occurrence of such events, which cannot be absolutely ruled out, increases the company’s operating costs.

American States Water Company currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the water space are Consolidated Water Co. Ltd. (CWCO - Free Report) , Connecticut Water Service Inc. and Artesian Resources Corp. (ARTNA - Free Report) , all three currently carrying a Zacks Rank #2 (Buy).

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