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American Water Works (AWK) Up 2% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for American Water Works (AWK - Free Report) . Shares have added about 2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is AWK due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

American Water Works Beats on Q4 Earnings, Issues View

American Water Works Company posted fourth-quarter 2017 earnings per share of 69 cents, which beat the Zacks Consensus Estimate of 66 cents by 4.5%. Earnings improved 21% from the year-ago quarter.

The improvement came on the back of growth in Regulated Businesses, which was primarily driven by infrastructure investment, acquisitions and organic growth. The Market-Based Businesses were bolstered by Homeowner Services Group.

Total Revenues
 

Total revenues of $821 million missed the Zacks Consensus Estimate of $835 million by 1.7%. However, reported revenues were up 2.4% year over year.

Highlights of the Release
 

Total operating expenses in the quarter were $542 million, down 2.2% from the year-ago quarter. The savings was primarily caused by lower operation & maintenance and lower depreciation & amortization expenses compared with the year-ago quarter.

Operating income was $279 million, up 12.5% year over year.
 
Segment Details
 
Regulated businesses
’ net income was $119 million, up 21.4% from $98 million reported in the year-ago quarter.  In the fourth quarter, net depreciation was favored by the implementation of new depreciation rates in Illinois subsidiary and O&M expense was benefitted by the timing of expenditures last year and continued focus on cost management.
 
Market-based businesses
’ net income was $14 million compared with $13 million in the year-ago quarter. The year-over-year increase can be attributed to growth in the Homeowner Services Group through customer gain and price increases.

Financial Highlights
 

Cash and cash equivalents were $55 million as of Dec 31, 2017, down from $75 million as of Dec 31, 2016.
 
Long-term debt was $6,498 million as of Dec 31, 2017, higher than $5,759 million as of Dec 31, 2016.

The company made capital investments of $1.7 billion in 2017, including $1.4 billion to improve infrastructure in the Regulated Businesses to provide safe, clean and reliable service and over $210 million for regulated acquisitions.

Guidance
 

American Water Works affirmed 2018 earnings per share guidance in the range of $3.22-$3.32 and long-term EPS growth at 7-10 % from a 2016 base.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimate. There has been one revision higher for the current quarter.

American Water Works Price and Consensus

VGM Scores

At this time, AWK has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable soley for growth based on our styles scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of this revision indicates a downward shift. Notably, AWK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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