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Investment & Debt Management Aid American States Water (AWR)

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American States Water Company (AWR - Free Report) has been gaining from an expanding customer base, systematic investments in upgrading infrastructure and a strong credit rating. These are likely to drive its performance over the long run.

American States Water currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for American States Water’s 2022 earnings per share (EPS) of $2.59 indicates year-over-year growth of 4.9%. AWR’s current dividend yield of 1.8% is better than the Zacks S&P 500 Composite’s yield of 1.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tailwinds

American States Water has a sturdy utility customer base. Its electricity and water utility customer bases are increasing at a slow but steady pace. The new rates will help the company recover the amount invested to upgrade and improve its infrastructure and continue its infrastructure upgrade initiatives. AWR expects to invest in the range of $140-$160 million in regulated utilities in 2022. These systematic investments are likely to drive the rate base from $752.2 million in 2018 to $1,152.3 million in 2022.

American States Water has ample liquidity to meet near-term obligations. Standard and Poor’s Global Ratings affirmed an A+ credit rating on both American States Water and Golden State Water. Also, AWR’s long-term debt was $412.2 million as of Dec 31, 2021, down from $440.3 million as of Dec 31, 2020.

The Debt to Capital of American States Water at the end of the first quarter of 2022 was 47.9% compared with the industry average of 48.8%. The company’s times interest earned ratio improved to 6.3 at the end of the first quarter of 2022. A ratio greater than one indicates that the utility will be able to meet debt obligations in the near future without any difficulty.

American States Water has been a steady dividend payer since 1931 and has increased the same in each calendar year for the last 67 consecutive years. The consistent performance helps the company continue with the shareholder-friendly move. AWR expects a CAGR of more than 7% over the long term.

Headwinds

American States Water’s dependence on a single state for the majority of earnings and the aging water infrastructure in some areas of California are a concern as these will increase maintenance expenses and can adversely impact profitability. Liquidity and operations might be adversely affected by changes in water supply costs along with the risk of groundwater contamination in service territories. Also, the implementation of strict environmental regulations can significantly increase operating costs.

Price Performance

In the past month, shares of AWR have rallied 11.8% compared with the industry’s 7.2% growth.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the same sector are Consolidated Water Company (CWCO - Free Report) , American Electric Power Company Inc. (AEP - Free Report) and AVANGRID Inc. (AGR - Free Report) , each currently carrying a Zacks Rank #2 (Buy).

The long-term earnings growth of Consolidated Water, American Electric Power and AVANGRID is projected at 6.1%, 6.2% and 5.9%, respectively.

The Zacks Consensus Estimate for 2022 EPS of Consolidated Water, American Electric Power and AVANGRID has moved up 191.3%, 5.3% and 3.7% year over year, respectively.

CWCO, AEP and AGR delivered an average earnings surprise of 36.5%, 2.4% and 3.6%, respectively, in the last four quarters.

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