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American States Water's (AWR) Capex, Customer Base Bode Well

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American States Water Company’s (AWR - Free Report) planned investments in strengthening its aging water infrastructure along with a sturdy utility customer base and consistent contribution from its American States Utility Services (ASUS) unit support its operations.

The Zacks Consensus Estimate for 2021 and 2022 earnings is pegged at $2.48 and $2.59 per share each, indicating respective growth of 6.44% and 4.44% from the corresponding year-ago reported figures. The company has a trailing four-quarter earnings surprise of 4.35%, on average.

What’s Aiding the Stock?

The company invested $75 million in the first two quarters of 2021and plans to spend in the range of $125-$135 million for the year toward regulated utilities. In July 2020, Golden State Water Company (GSWC) filed a general rate case application for all the water regions and also applied for new rates at the general office for the years 2022, 2023 and 2024.

The new application includes capital budget requests of $450.6 million for the 2021-2024 time period and another $11.4 million worth of capital projects will be filed for revenue recovery once those projects are completed. Along with American States Water Company, other water utilities are investing heavily in their infrastructure for maintenance, upgrade and enhancement. These include Middlesex Water (MSEX - Free Report) , American Water Works (AWK - Free Report) and California Water Service (CWT - Free Report) .

Moreover, the company has a solid customer base and is adding electricity and water utility customers at a slow but steady pace through acquisitions and organic means. American States Water Company’s Water segment is a major contributor to its total revenues.

ASUS has long-term contracts with military bases, which are 50-year fixed-price deals. Prices are determined by the military outfits. The long-term defense contracts lend stability to the company’s earnings. This unit is expected to contribute 45-49 cents per share to its current-year earnings.

Headwinds

American States Water Company’s dependence on a single state (California) 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. Further, the aging water infrastructure and the risk of contamination of groundwater could adversely impact its operations.