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Why Is American Water Works (AWK) Down 3.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for American Water Works (AWK - Free Report) . Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

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

American Water Q2 Earnings & Revenues Beat Estimates

American Water Works Company posted first-quarter 2020 earnings of 97 cents per share, which beat the Zacks Consensus Estimate by a penny.

The bottom line also improved 3.2% year over year on the back of strong contributions from Regulated and Market-based businesses. Second-quarter 2020 earnings figure reflects a 5 cents per share unfavorable impact due to the COVID-19 pandemic.

Total Revenues

Total revenues of $931 million beat the Zacks Consensus Estimate of $917 million by 1.5% and improved 5.7% from the year-ago figure of $882 million.

Highlights of the Release

Total operating expenses for the quarter were $618 million, up 6.6% from the year-ago period. The increase was due to higher operation and maintenance expenses.

Operating income was $313 million, 3.6% higher than the year-ago figure. New water rates effective January 2020 increased revenues by $80 million from a year ago.

Year to date, the company added 17,700 customers to the existing customer base through closed acquisitions and organic means. Its pending acquisitions, when completed, will add another 43,600 customers to the customer base.

For the 12 months period ended Jun 30, O&M efficiency improved to 34.3% from 35.2% in the year-ago period. The improvement was due to persistent focus on operating costs, and an increase in operating revenues for Regulated businesses.

Interest expenses for the reported quarter totaled $101 million, up 7.5% from $94 million in the prior-year period.

Segment Details

Regulated businesses’net income was $177 million compared with $156 million in the year-ago quarter. Till Jul 31, 2020, this segment added 10,800 customers through 13 acquisitions in six states.  Acquisitions, organic growth and additional authorized revenues to support infrastructure investments boosted income.

Market-Based businesses’ net income was $23 million compared with $21 million in the year-ago quarter.

Financial Highlights

Cash and cash equivalents amounted to $569 million as of Jun 30, 2020, up from $60 million on Dec 31, 2019.

Total long-term debt was $9,593 million as of Jun 30, 2020, higher than $8,644 million at 2019-end.

Cash flow from operating activities for first-half 2020 was $531 million compared with $480 million in the comparable year-ago period. For first-half 2020, capital expenditure of the company was $870 million compared with $712 million in the corresponding year-ago period.

Guidance

American Water reaffirmed its guidance for 2020 earnings in the range $3.79-$3.89, taking into consideration a 6-cent impact of depreciation not recorded as required by assets held for sale accounting and an estimated 5-8 cents per share unfavorable impact from the COVID-19 pandemic.

The company has plans to invest $20-$22 billion of capital over the next 10 years. Subject to the approval of the board of directors, dividend growth for the 2020-2024 period is expected to be at the high end of the 7-10% range.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, American Water Works has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, American Water Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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