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Water Stocks Q2 Earnings to Report on Aug 2: AWK, WTR, AWR

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The Q2 earnings season has crossed the halfway mark. As of Jul 28, 286 S&P 500 members came up with quarterly earnings. Total earnings are up 11.3% from the same period last year on 6.1% higher revenues. 74.5% of the companies beat EPS estimates while 69.2% topped revenue estimates.

Nearly 1000 companies – including 130 S&P 500 members – are expected to come up with results this week. Combining the results of the reported index members (286 members till Jul 28) with the remaining 214 members of S&P 500, earnings are estimated to improve 9.2% on 5.0% higher revenues.

Let us now focus on the water stocks within the utility sector, which is characterized by its defensive nature and domestic orientation. Initially, when the season started, we expected earnings to drop 2.9%. However, as the season gradually unfolds, we expect utility earnings to drop 1.8%.

Per the survey of the U.S. Environmental Protection Agency (EPA), massive investments will be required to upgrade the existing old and soiled water and wastewater infrastructure. To avoid risk of contamination and wastage of potable water, there should be a concerted effort to replace and upgrade some of the century-old mains and pipelines that are still in use. An excess of $600 billion will be required to upgrade the water and wastewater systems in the next 20 years.

Consolidation is the need of the hour in the fragmented U.S. water utility space. The old infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would, therefore, drive the necessary infrastructure overhauls for the industry at large.

Four out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline this season. Read more details in our weekly Earnings Preview.

Let’s take a look at a few water utilities that are scheduled to report quarterly numbers on Aug 2.

American Water Works Company’s (AWK - Free Report) earnings were in line with the Zacks Consensus Estimate in the previous quarter. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Water Works Price and EPS Surprise

 

American Water Works Price and EPS Surprise | American Water Works Quote


American Water Works’ Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 80 cents. According to our proven model, stocks with the combination of a positive ESP and a Zacks Rank #1, 2 or 3 (Hold) have increased chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The company is unlikely to beat earnings because it does not have the right combination of the two key ingredients (read more: Can American Water Pull Off a Surprise in Q2 Earnings?)

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Aqua America, Inc. (WTR - Free Report) reported a negative earnings surprise of 3.45% in the previous quarter. The company currently carries a Zacks Rank #4.

Aqua America, Inc. Price and EPS Surprise

 

Aqua America, Inc. Price and EPS Surprise | Aqua America, Inc. Quote


Aqua America’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged of 34 cents.

Hence, it is unlikely to beat earnings as it does not have the right combination of the two key ingredients.

American States Water Company (AWR - Free Report) reported a positive earnings surprise of 6.25% in the previous quarter. The company currently holds a Zacks Rank #4.


American States Water Company’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged of 45 cents.

Hence, it is unlikely to beat earnings as it does not have the right combination of the two key ingredients.

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American Water Works (AWK) - free report >>

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