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Why Is American Water Works (AWK) Down 3.6% 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 3.6% 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 catalysts.
American Water Q3 Earnings Top Estimates, 2020 View Up
American Water Works Company posted third-quarter 2020 earnings of $1.46 per share, which beat the Zacks Consensus Estimate by 5.8%.
The bottom line also improved 9.8% year over year on the back of strong contributions from Regulated businesses. The encouraging quarterly earnings reflect favorable impact of weather and improved residential customer demand, attributable to more stay-at-home activities owing to the COVID-19 pandemic.
Total Revenues
Total revenues of $1,079 million beat the Zacks Consensus Estimate of $1,040 million by 3.8% and improved 6.5% from the year-ago figure of $1,013 million.
Highlights of the Release
Total operating expenses for the quarter were $646 million, up 6.4% from the year-ago period. The increase was due to higher operation and maintenance expenses.
Operating income was $433 million, 6.7% higher than the year-ago figure. New rates approved in the year added $127 million to annual revenues and the pending rate case, if approved without change, will further increase revenues by $212 million.
From the start of the year till Nov 2, the company added more than 47,000 customers to the existing customer base through closed acquisitions and organic means, out of which 36,200 customers were added via acquisitions. Its pending acquisitions, when completed, will add another 19,000 customers to the customer base.
For the 12 months period ended Sep 30, O&M efficiency improved to 34.2% from 34.8% 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 $99 million, up 2.1% from $97 million in the prior-year period.
Segment Details
Regulated businesses’ net income was $261 million compared with $236 million in the year-ago quarter. From the start of the year till Nov 2, this segment added 36,200 customers through 20 acquisitions in nine states. Acquisitions, organic growth and additional authorized revenues to support infrastructure investments boosted income.
Market-Based businesses’ net income was $23 million, on par with the year-ago quarter. Military Services Group was awarded a contract for Joint-Base Lewis-McChord in September 2020.
Financial Highlights
Cash and cash equivalents amounted to $560 million as of Sep 30, 2020, up from $60 million on Dec 31, 2019.
Total long-term debt was $9,584 million as of Sep 30, 2020, higher than $8,644 million at 2019-end.
Cash flow from operating activities for the first nine months of 2020 was $988 million compared with $945 million in the comparable year-ago period. For the same period, capital expenditure of the company was $1,314 million compared with $1,115 million in the corresponding year-ago period.
Guidance
American Water increased its guidance for 2020 earnings to the range of $3.87-$3.93 from $3.79-$3.89, taking into consideration favorable year-to-date impact of weather on demand, a 6-cent impact of depreciation not recorded as required by assets held for sale accounting and an estimated 3-6 cents per share unfavorable impact from the COVID-19 pandemic.
The company aims to invest $1.9 billion across its service territories in 2020. The company has plans to invest $20-$22 billion of capital over the next 10 years.
Subject to approval of the board of directors, dividend growth for the 2020-2024 period is expected at the high end of the 7-10% range. Its O&M efficiency target remains at 31.3% for 2024.
.
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, a grade with the same score on the momentum front. 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 indicates a downward shift. 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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Why Is American Water Works (AWK) Down 3.6% Since Last Earnings Report?
It has been about a month since the last earnings report for American Water Works (AWK - Free Report) . Shares have lost about 3.6% 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 catalysts.
American Water Q3 Earnings Top Estimates, 2020 View Up
American Water Works Company posted third-quarter 2020 earnings of $1.46 per share, which beat the Zacks Consensus Estimate by 5.8%.
The bottom line also improved 9.8% year over year on the back of strong contributions from Regulated businesses. The encouraging quarterly earnings reflect favorable impact of weather and improved residential customer demand, attributable to more stay-at-home activities owing to the COVID-19 pandemic.
Total Revenues
Total revenues of $1,079 million beat the Zacks Consensus Estimate of $1,040 million by 3.8% and improved 6.5% from the year-ago figure of $1,013 million.
Highlights of the Release
Total operating expenses for the quarter were $646 million, up 6.4% from the year-ago period. The increase was due to higher operation and maintenance expenses.
Operating income was $433 million, 6.7% higher than the year-ago figure. New rates approved in the year added $127 million to annual revenues and the pending rate case, if approved without change, will further increase revenues by $212 million.
From the start of the year till Nov 2, the company added more than 47,000 customers to the existing customer base through closed acquisitions and organic means, out of which 36,200 customers were added via acquisitions. Its pending acquisitions, when completed, will add another 19,000 customers to the customer base.
For the 12 months period ended Sep 30, O&M efficiency improved to 34.2% from 34.8% 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 $99 million, up 2.1% from $97 million in the prior-year period.
Segment Details
Regulated businesses’ net income was $261 million compared with $236 million in the year-ago quarter. From the start of the year till Nov 2, this segment added 36,200 customers through 20 acquisitions in nine states. Acquisitions, organic growth and additional authorized revenues to support infrastructure investments boosted income.
Market-Based businesses’ net income was $23 million, on par with the year-ago quarter. Military Services Group was awarded a contract for Joint-Base Lewis-McChord in September 2020.
Financial Highlights
Cash and cash equivalents amounted to $560 million as of Sep 30, 2020, up from $60 million on Dec 31, 2019.
Total long-term debt was $9,584 million as of Sep 30, 2020, higher than $8,644 million at 2019-end.
Cash flow from operating activities for the first nine months of 2020 was $988 million compared with $945 million in the comparable year-ago period. For the same period, capital expenditure of the company was $1,314 million compared with $1,115 million in the corresponding year-ago period.
Guidance
American Water increased its guidance for 2020 earnings to the range of $3.87-$3.93 from $3.79-$3.89, taking into consideration favorable year-to-date impact of weather on demand, a 6-cent impact of depreciation not recorded as required by assets held for sale accounting and an estimated 3-6 cents per share unfavorable impact from the COVID-19 pandemic.
The company aims to invest $1.9 billion across its service territories in 2020. The company has plans to invest $20-$22 billion of capital over the next 10 years.
Subject to approval of the board of directors, dividend growth for the 2020-2024 period is expected at the high end of the 7-10% range. Its O&M efficiency target remains at 31.3% for 2024.
.
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, a grade with the same score on the momentum front. 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 indicates a downward shift. Notably, American Water Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.