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Why Is American Water Works (AWK) Up 4.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for American Water Works (AWK - Free Report) . Shares have added about 4.7% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

American Water Q3 Earnings & Revenues Beat Estimates

American Water Works Company posted third-quarter 2018 earnings per share of $1.20, which beat the Zacks Consensus Estimate of $1.16 by 3.5%. The figure also improved 11.1% year over year. The uptick was supported by solid growth in Regulated and Market-Based businesses during the third quarter.

The company reported GAAP earnings of $1.04 compared with $1.13 in the year-ago quarter.

Total Revenues
 
Total revenues of $976 million surpassed the Zacks Consensus Estimate of $956 million and the year-ago figure of $936 million by 2.1% and 4.3%, respectively.

Highlights of the Release
 
Total operating expenses in the quarter were $641 million, up 27.2% from the year-ago quarter. The increase was primarily led by higher general taxes, along with greater operation and maintenance expenses compared with the year-ago levels.

Operating income was $335 million, down 22.4% year over year.

Segment Details
 
Regulated businesses’ net income was $213 million, up 7% from $199 million in the year-ago quarter. Regulated businesses added 16,500 customers on a year-to-date basis through acquisitions and organic growth. The company is looking forward to add another 56,000 customers through pending acquisitions.

Market-Based businesses’ net income was $23 million compared with $14 million in the year-ago quarter. The year-over-year increase can be attributed to growth in Homeowner Services Group, along with lower-than-expected Pivotal Home Solutions integration expenses during the quarter

Financial Highlights

Cash and cash equivalents were $86 million as of Sep 30, 2018, up 56.4% from Dec 31, 2017 level.
 
Long-term debt was $7,570 million as of Sep 30, 2018, higher than $6,490 million on Dec 31, 2017.

In the first nine months of 2018, the company made capital investments of $1.5 billion.

Guidance

American Water Works narrowed the high end of 2018 earnings per share guided range to $3.27-$3.32 per share from $3.22-$3.32 projected earlier.
 
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

Currently, American Water Works has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

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 #2 (Buy). We expect an above average return from the stock in the next few months.




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