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Why Is Essential Utilities (WTRG) Up 1.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Essential Utilities (WTRG - Free Report) . Shares have added about 1.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Essential Utilities 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.

Essential Q1 Earnings Beat Estimates, Revenues Lag

Essential Utilities Inc. reported first-quarter 2021 earnings per share of 72 cents, which surpassed the Zacks Consensus Estimate by 9.1%. The reported earnings were 20% higher than 60 cents per share recorded in the year-ago quarter.

GAAP earnings per share for the reported quarter were 72 cents compared with 20 cents in the year-ago period.

Total Revenues

First-quarter revenues of $583.6 million were up 128.3% year over year. The year-over-year improvement in total revenues was due to contribution from its acquired natural gas assets, increased volume, growth and rate along with surcharge increases in the regulated water segment.

However, revenues for the reported quarter missed the Zacks Consensus Estimate by 16.6%.

Highlights of the Release

The company continues to expand operations through strategic acquisitions. The pipeline of potential water and wastewater municipal acquisitions that it is actively pursuing represents nearly 395,000 total customers or equivalent dwelling units.

To date in 2021, the regulated water segment received rate awards in different jurisdictions that led to an increase in annualized revenues of the company by $13.5 million. Essential’s regulated natural gas segment has received rate awards or infrastructure surcharges in Pennsylvania and Kentucky, estimated to increase annualized revenues by $1.1 million. The company currently has a proceeding pending in Virginia for the regulated water segment, which would add an estimated $1.7 million in incremental revenues.

Operation and maintenance expenses increased 17.3% year over year to $125.1 million. This was primarily due to an increase in Peoples transaction-related costs.

Operating income for the reported quarter was $232.4 million, up 216.2% year over year.

Interest expenses increased 44.7% to $50.8 million from $35.1 million in the year-ago quarter.

Financial Highlights

Current assets were $348.1 million as of Mar 31, 2021 compared with $380.2 million as of Dec 31, 2020. Long-term debt was $5,547.9 million as of Mar 31, 2021, higher than $5,507.8 million on Dec 31, 2020

Essential invested $178 million in the first three months of 2021 to improve regulated water and natural gas infrastructure systems. The company remains on track to invest nearly $1 billion in 2021 to replace and expand its water and wastewater utility infrastructure as well as replace and upgrade its natural gas utility infrastructure.

Guidance

The company reaffirmed its 2021 earnings guidance in the range of $1.64-$1.69 per share. The mid-point of the earnings guidance is on par with the corresponding Zacks Consensus Estimate of $1.67 per share.

It expects the customer base from the water segment to expand 2-3% on the back of acquisitions and organic customer growth.

The company plans to invest $550 million in the regulated water segment and $450 million in the regulated gas segment in 2021. This capital expenditure is part of its total investment plan of $3 billion through 2023.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Essential Utilities has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

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


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