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American Water Works (AWK) Q3 Earnings: Stock to Beat?
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We expect American Water Works Company, Inc. (AWK - Free Report) to beat expectations when it reports third-quarter 2016 results after the market closes on Nov 2. Last quarter, this fresh water and wastewater service provider reported a positive earnings surprise of 6.94%, bringing the trailing four-quarter average to 1.67%.
Why a Likely Positive Surprise?
Our proven model shows that American Water Works Company is likely to beat estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to report a positive surprise and American Water Works has the right mix.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate of $1.02 and the Zacks Consensus Estimate of $1.00, is +2.00%. This is a meaningful and leading indicator of a likely positive surprise.
Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: American Water Works Company currently carries a Zacks Rank #2. The combination of American Water Works’ favorable Zacks Rank and positive ESP makes us reasonably confident of a positive surprise this season.
Conversely, we caution against Sell-rated stocks (#4 or #5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
American Water Works continues to widen its footprint through strategic acquisitions. During the first half of 2016, the company closed 10 acquisitions, expanding its customer base by 7,556. The 13 pending acquisitions for 2016 will add another 47,845 customers to its existing base.
One of the pending acquisitions is Shorelands Water Company, a buyout that was completed in the third quarter, adding more than 11,000 water customers in New Jersey.
American Water Works has invested rigorously to boost its regulated business, mainly for the replacement and renewal of transmission and distribution infrastructure.
During the second-quarter earnings call, management had revealed its expectations of completing the acquisition of Scranton Sewer Authority by the end of the third quarter. The transaction is anticipated to add 31,000 wastewater customers to American Water Works’ existing base.
On the flip side, the company continues to face headwinds in the form of a lower fixed capital upgrade on the existing military installation.
The company’s financials are also being negatively affected due to rising healthcare cost. In an effort to counter this, the company has formed a Health Transformational Alliance (HTA) with 20 national companies, under which it aims to offer higher-quality care through partnerships with healthcare facilities. The alliance is expected to boost the company’s financials, arming it improved treatment options.
Overall, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at $1.00, reflecting a year-over-year increase of 4%, while revenue estimates stand at $936.62 million, implying a 4.5% upside.
Other Stocks to Consider
American Water Works is not the only utility company looking up this earnings season. We see likely earnings beats coming from these companies as well:
Avista Corp. (AVA - Free Report) has an Earnings ESP of +4.76% and a Zacks Rank #2. The company is set to announce third-quarter 2016 earnings on Nov 1.
ONE Gas, Inc. (OGS - Free Report) has an Earnings ESP of +31.58% and a Zacks Rank #2. The company is set to announce third-quarter 2016 earnings on Nov 1.
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American Water Works (AWK) Q3 Earnings: Stock to Beat?
We expect American Water Works Company, Inc. (AWK - Free Report) to beat expectations when it reports third-quarter 2016 results after the market closes on Nov 2. Last quarter, this fresh water and wastewater service provider reported a positive earnings surprise of 6.94%, bringing the trailing four-quarter average to 1.67%.
Why a Likely Positive Surprise?
Our proven model shows that American Water Works Company is likely to beat estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to report a positive surprise and American Water Works has the right mix.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate of $1.02 and the Zacks Consensus Estimate of $1.00, is +2.00%. This is a meaningful and leading indicator of a likely positive surprise.
Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: American Water Works Company currently carries a Zacks Rank #2. The combination of American Water Works’ favorable Zacks Rank and positive ESP makes us reasonably confident of a positive surprise this season.
Conversely, we caution against Sell-rated stocks (#4 or #5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
AMER WATER WORK Price and EPS Surprise
AMER WATER WORK Price and EPS Surprise | AMER WATER WORK Quote
What’s Driving the Better-Than Expected Earnings?
American Water Works continues to widen its footprint through strategic acquisitions. During the first half of 2016, the company closed 10 acquisitions, expanding its customer base by 7,556. The 13 pending acquisitions for 2016 will add another 47,845 customers to its existing base.
One of the pending acquisitions is Shorelands Water Company, a buyout that was completed in the third quarter, adding more than 11,000 water customers in New Jersey.
American Water Works has invested rigorously to boost its regulated business, mainly for the replacement and renewal of transmission and distribution infrastructure.
During the second-quarter earnings call, management had revealed its expectations of completing the acquisition of Scranton Sewer Authority by the end of the third quarter. The transaction is anticipated to add 31,000 wastewater customers to American Water Works’ existing base.
On the flip side, the company continues to face headwinds in the form of a lower fixed capital upgrade on the existing military installation.
The company’s financials are also being negatively affected due to rising healthcare cost. In an effort to counter this, the company has formed a Health Transformational Alliance (HTA) with 20 national companies, under which it aims to offer higher-quality care through partnerships with healthcare facilities. The alliance is expected to boost the company’s financials, arming it improved treatment options.
Overall, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at $1.00, reflecting a year-over-year increase of 4%, while revenue estimates stand at $936.62 million, implying a 4.5% upside.
Other Stocks to Consider
American Water Works is not the only utility company looking up this earnings season. We see likely earnings beats coming from these companies as well:
Ameren Corporation (AEE - Free Report) is slated to announce third-quarter 2016 earnings on Nov 4.The company has an Earnings ESP of +2.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Avista Corp. (AVA - Free Report) has an Earnings ESP of +4.76% and a Zacks Rank #2. The company is set to announce third-quarter 2016 earnings on Nov 1.
ONE Gas, Inc. (OGS - Free Report) has an Earnings ESP of +31.58% and a Zacks Rank #2. The company is set to announce third-quarter 2016 earnings on Nov 1.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>