Back to top

Image: Bigstock

California Water (CWT) Investments to Aid as Infrastructure Ages

Read MoreHide Full Article

California Water Service Group’s (CWT - Free Report) investments in infrastructure will allow it to provide customers with efficient water and wastewater services. The company continues to expand its operations through acquisitions and organic methods, which will further boost its performance. CWT increases its shareholders’ value with regular dividend hikes.

However, this Zacks Rank #4 (Sell) stock faces risks related to changes in regulations and aging water infrastructure.

Tailwinds

California Water invested $293.2 million and $327.8 million in 2021 and 2022, respectively. The majority of its capital expenditures were associated with mains and water treatment equipment. The company’s estimated capital expenditure for 2023 and 2024 is $360 million and $365 million, respectively.

CWT’s primary focus is to expand operations in thewestern United States and explore new opportunities to increase regulated and non-regulated water and wastewater activities. The company’s customer base is likely to witness an uptrend in 2023, on the back of improving economic conditions, completed acquisitions and other organic efforts. In January 2023, California Water’s subsidiary, New Mexico Water Service, signed an agreement to purchase the assets of Lake Section Water Company. This deal will boost CWT’s portfolio by 5,000 connections.

The company’s consistent performance helps it to continue with its shareholder-friendly moves. In January 2023, it increased the annual dividend by 4% to $1.04 per share from $1, marking the utility’s 312th consecutive quarterly and 56th consecutive annual dividend hike. This resulted in a quarterly dividend of 26 cents per share.

Headwinds

The utility operates in a highly regulated environment and any changes in existing laws and conditions could increase the operating costs. Also, there’s no assurance that the commission would approve rate increases to enable the recovery of these additional compliance costs. These factors, in unison, can have an adverse impact on the company’s business.

The aging water infrastructure is another concern for California Water. Any addition or improvement in the existing water infrastructure requires huge capital investments. If the company fails to procure the required capital at a desirable rate, it could hamper its operations.

Stocks to Consider

Some better-ranked stocks for investors interested in the same sector are Atmos Energy Corporation (ATO - Free Report) , NiSource, Inc. (NI - Free Report) and Spire Inc. (SR - Free Report) , each holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Atmos Energy, NiSource and Spire’s 2023 earnings per share indicates an increase of 7.1%, 6.8% and 9.1%, respectively.

Long-term (three- to five-year) earnings growth of Atmos Energy, NiSource and Spire is pegged at 7.5%, 6.8% and 4.22%, respectively.


 

Published in