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Why Is American Water Works (AWK) Up 0.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for American Water Works (AWK - Free Report) . Shares have added about 0.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Water Works 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.

American Water Works Beats Earnings Estimates in Q2

American Water Works posted second-quarter 2018 earnings per share of 83 cents, which beat the Zacks Consensus Estimate of 81 cents by 2.5%. The figure improved 13.7% year over year. The uptick was supported by solid growth in the Regulated and Market-Based businesses in the second quarter.

The company reported GAAP earnings of 91 cents, which improved 24.7% from 73 cents in the year-ago quarter.

Total Revenues
 

Total revenues of $853 million missed the Zacks Consensus Estimate of $908 million by 6.1%. However, reported revenues improved 1.2% year over year.

Highlights of the Release
 

Total operating expenses in the quarter were $551 million, up 3.2% from the year-ago quarter’s tally. The increase was primarily led by higher general taxes and higher depreciation & amortization expenses compared with the year-ago quarter’s levels.

Operating income was $302 million, down 2.6% year over year.

Segment Details
 
Regulated businesses’
net income was $152 million, up 8.6% from $140 million in the year-ago quarter. Year to date regulated businesses added 10,300 customers through acquisitions and organic growth.

Market-Based businesses’ net income was $13 million compared with $9 million in the year-ago quarter. The year-over-year increase can be attributed to growth in the Homeowner Services Group, supported by customer addition, cost management and the federal income tax rate cut.

Financial Highlights
 

Cash and cash equivalents were $68 million as of Jun 30, 2018, up 23.6% from Dec 31, 2017 level.
 
Long-term debt was $6,345 million as of Jun 30, 2018, lower than $6,490 million as of Dec 31, 2017.

For the first six months of 2018, the company made capital investments of nearly $1.1 billion. The amount includes $713 million primarily allocated toward infrastructure in the Regulated businesses, $363 million toward the Pivotal acquisition and $14 million for regulated acquisitions.  

Guidance

American Water Works reaffirmed the 2018 earnings per share guidance in the range of $3.22-$3.32. The company also provided 2018 earnings guidance GAAP in the range of $3.30-$3.40 per diluted share.

American Water plans to invest $2.0-$2.1 billion, including the acquisition of Pivotal Home Solutions in 2018.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, American Water Works has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Water Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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