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American States Water (AWR) Gains From Capex, Customer Base

American States Water's (AWR) continued customer wins and strategic investments are likely to drive its operational efficiency.

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This story originally appeared on Zacks

American States Water Company’s AWR planned investments in strengthening its aging water infrastructure along with a sturdy utility customer base act as tailwinds. Consistent contribution from its American States Utility Services (ASUS) unit too aids its operations.



The Zacks Consensus Estimate for 2021 and 2022 earnings is pegged at $2.48 and $2.59 per share each, indicating respective growth of 6.44% and 4.44% from the corresponding year-ago reported figures. The company has a trailing four-quarter earnings surprise of 4.35%, on average.



Shares of this currently Zacks Rank #3 (Hold) player have gained 22.2% in the past six months, outperforming the industry’s rise of 20.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Six-Months Price Performance

 

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What’s Aiding the Stock?

After investing $75 million in the first two quarters of 2021, the company expects to spend in the range of $125-$135 million for the year toward regulated utilities. In July 2020, Golden State Water Company (GSWC) filed a general rate case application for all water regions and also applied for new rates at the general office for the years 2022, 2023 and 2024.



The new application includes capital budget requests of $450.6 million for 2021-2024 and another $11.4 million worth of capital projects will be filed for revenue recovery once those projects are completed. Apart from American States Water Company, other water utilities like Middlesex Water MSEX, American Water Works AWK and California Water Service CWT are investing heavily in their infrastructure for maintenance, upgrade and enhancement.



The company also has a solid customer base and is adding electricity and water utility customers at a slow but steady pace through acquisitions and organic means. American States Water Company’s Water segment is a major contributor to its total revenues.



ASUS has long-term contracts with military bases, which are 50-year firm fixed-price deals. The long-term defense contracts lend stability to the company’s earnings. This unit is expected to contribute 45-49 cents per share to its current-year earnings.

Headwinds

American States Water Company’s dependence on a single state (California) for recognizing a significant chunk of its earnings is a huge downside. Also, the company operates in a highly regulated environment and any changes in the existing laws and conditions could affect its business.



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American Water Works Company, Inc. (AWK): Free Stock Analysis Report

 

California Water Service Group (CWT): Free Stock Analysis Report

 

American States Water Company (AWR): Free Stock Analysis Report

 

Middlesex Water Company (MSEX): Free Stock Analysis Report

 

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