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American States Water Strong on Stable Capex & Customer Base

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American States Water Company’s (AWR - Free Report) 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 firsthalf of 2020. The company revised its current-year capex guidance to the $105-$120 million range, down from the prior projection of $115-$130 million to preserve liquidity. The company altered its capital investment estimate in response to the unprecedented economic distress stemming from the COVID-19 outbreak.

A major portion of American States Water Company’s total revenues is derived from its Water segment. 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.Thisunit 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 aided in payment of regular dividends to its shareholders. Year to date, operating cash flows for American States Water have increased to $46.3 million from $44.7 million in the first six months of 2019. 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 13.8% in the past six months compared with the industry’s decline of 9%.

Stocks to Consider

A few better-ranked utilities are Portland General Electric Company (POR - Free Report) , Korea Electric Power Corporation (KEP - Free Report) and Essential Utilities Inc. (WTRG - Free Report) , 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.

Portland General Electric Company delivered an earnings surprise of 7.74%, on average, in the last four quarters. The company has a long-term earnings growth rate of 5.14%.

Korea Electric Power has a long-term earnings growth rate of 5%. The Zacks Consensus Estimate for 2020 earnings has been steady in the past 60 days.

Essential Utilities has a long-term earnings growth rate of 6.01%. The company delivered an earnings surprise of 9.67%, on average, in the trailing four quarters.

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