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AWR or CWT: Which Water Utility is in Focus This Summer?

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The existing U.S. water and wastewater infrastructure is quite old, and gradually approaching the end of effective life. The old and soiled pipelines are causing regular main line breaks, in turn resulting in the wastage of billions of gallons of potable water per year. In addition, the main line breaks increases the possibility of contamination. To overcome this issue, major water utilities continued with their capital projects, and repair and maintenance of assets so that customers get proper water and wastewater services.

Due to the novel coronavirus outbreak, people were advised to stay at home and maintain proper hygiene to check the spread of the same. With millions of customers staying back at home and facing some degree of financial distress for the lockdown, water utilities ensured 24x7 supply of potable water to all customers in their service territories, even if they fail to pay service dues.

Currently, more than 53,000 water systems in the United States are providing water solutions to customers. The highly fragmented water industry creates operational challenges in meeting increasing requirement for water. Hence, consolidation in the fragmented industry and regular investments are the need of the hour to extend quality services to customers.

At present, the summer season is ongoing in the United States. Demand for water generally increases during this season. Per a report from The Old Farmer’s Almanac, summer season in 2020 is expected to be hotter than normal. As the summer weather of 2020 is expected to be favorable for water utilities, the demand for water will increase.

Amid this backdrop, we run a comparative analysis on two water utilities from Zacks Utility Water Supply industry — California Water Service Group (CWT - Free Report) and American States Water Company (AWR - Free Report) — to ascertain which one is a better investment option right now. Market capitalization of California Water Service is $2.35 billion and the same for American States Water is around $2.93 billion.

Both the stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimates Movement

In the past 60 days, the Zacks Consensus Estimate for California Water Service’s 2020 earnings has been downwardly revised by 1.4% to $1.43 per share.

The Zacks Consensus Estimate for American States Water’s 2020 earnings has moved up 1.8% over the past 60 days to $2.27 per share.

Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for California Water Service and American States Water is 6.69% and 13.44%, respectively, compared with the
the industry average of 9.08%.

Debt to Capital

The debt to capital is a good indicator of a company’s financial position that shows how much debt is utilized to conduct the business. American States Water has a debt to capital of 44.87% compared with California Water Service’s 51.02%. Aqua America’s debt to capital is lower than the industry’s 48.97%.

Earnings Surprise

California Water Service delivered average negative surprise of 554.9% in the last four quarters.

American States Water delivered average positive surprise of 5.92% in the last four quarters.

Price Movement

Shares of American States Water have gained 2.9% against California Water Service’s decline of 6.4% in the past 12 months. The Zacks Utility Water Supply industry has gained 2.4% in the same time frame.

One-Year Price Performance

Dividend Yield

Currently, American States Water’s dividend is 1.53% compared with California Water Service’s 1.76%. The industry’s dividend yield is 1.76%.

Our Verdict

Both the water utilities will continue to serve the needs of customers during the ongoing summer season. Dividend yield of California Water Service was better than American States Water. However, given the latter’s better ROE, debt to capital, estimate revision and price movement than the former, our verdict goes to American States Water.

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