American Water Works Company, Inc. (AWK - Free Report) announced earnings per share (EPS) view for 2019 within $3.54-$3.64, which represents 9.1% growth from the midpoint of 2018 guided range of $3.27-$3.32.
American Water Works expects to deliver a five-year earnings CAGR in the top half of the 7-10% range from 2017 base. This water utility continues to benefit from systematic investments, rate hikes, expansion of operation, along with the addition of new customers through organic means and acquisitions.
Updated Capital Guidance
American Water Works expects to invest in the range of $8-$8.6 billion in the 2019-2023 time frame. Earlier, the company planned to invest within $8.4-$9.0 billion from 2018 through 2022.
Out of the new capital expenditure guidance, the company will invest $7.3 billion in its regulated assets, $0.6-$1.2 billion in regulated acquisitions and $0.1 billion in market-based business.
It is quite evident from the investment strategy of the company that regulated investment and acquisitions will continue to boost performance of the company. New service rates, effective Jan 1, 2018, have raised the total revenues of the company by $155 million.
Fragmented Water Space
Water and wastewater service market in the United States is highly fragmented. At present, more than 50,000 community water and nearly 15,000 wastewater systems provide services to customers in the United States. Out of them, majority of the water service providers serve a very small customer base. Hence, it becomes difficult for them to carry out regular investments needed to upgrade, maintain the aging infrastructure and provide quality services to customers.
The Environmental Protection Agency (EPA) has estimated that the U.S. public water infrastructure will need $384.2 billion capital improvement over the next 20 years.
American Water Works along with some other water utilities are working on consolidating in the fragmented water space. The financial strength of the big companies helps them to carry out the much required additions, as well as changes in the water mains and storage facilities.
American Water Works completed 61 acquisitions in the 2015-2018 time frame and added 114,000 customers in 10 states to its existing customer base. The pending 24 acquisitions, on completion, can add another 67,000 customers to its customer base.
Another water utility Aqua America Inc. (WTR - Free Report) has completed nearly 300 acquisitions since 1995. Acquisitions and organic growth have helped the company to expand its operations. Global Water Resources Inc. (GWRS - Free Report) also made a few acquisitions in the last couple of years to expand its operations.
In the past six months, shares of American Water Works have gained 22.2% compared with the industry's growth of 16.4%.
Zacks Rank and A Key Pick
Currently, American Water Works has a Zacks Rank #3 (Hold). A better-ranked stock from the same industry is American States Water Company (AWR - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American States Water surpassed third-quarter earnings estimates by 3.33%. The Zacks Consensus Estimate for 2018 earnings has moved 0.6% north to $1.73 per share over the past 60 days.
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