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American States Water (AWR) to Gain From Systematic Investments

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American States Water Company’s (AWR - Free Report) strategic investments in upgrades are further strengthening its infrastructure. The company has a strong utility customer base, which is increasing the demand for its services.

However, this Zacks Rank #3 (Hold) company’s excessive reliance on a single state for a significant portion of its earnings acts as a headwind.

Tailwinds

American States Water has a sturdy utility customer base, and most importantly, it is increasing its electricity and water utility customer base at a slow but steady pace. Strategic capital investments are making the company’s infrastructure stronger and more resilient. AWR expects capital expenditures of $611.4 million during 2025-2027.

The company’s subsidiary, American States Utility Services (“ASUS”), started operating the water and wastewater systems at two new military bases in April 2024. It signed a 50-year contract at Naval Air Station Patuxent River with an initial firm-fixed-price value estimated at $349 million and another 15-year contract at Joint Base Cape Cod for up to a maximum firm-fixed-price value of $75 million. The long-term defense pacts lend stability to the company’s earnings.

AWR is anticipated to successfully bid for future military base contract wins on the back of a strong track record and experience. ASUS generates additional income and profit margin from the fulfillment of filings for economic price adjustments, requests for equitable adjustments, asset transfers, and modifications awarded and granted for new projects.

Headwinds

The company still focuses on a single state, California, particularly Southern California, for its services. Consequently, the financial performance of AWR, to a large extent, is dependent on the political, water supply, labor, utility cost and regulatory risks, as well as economic conditions, natural disasters and other risk factors affecting the state.

The water service providers, despite adopting safety measures, always run the risk of groundwater contamination in their service territories. American States Water might have to incur additional costs to address the potential contamination issues.

Price Performance

In the past month, shares of American States Water have lost 1.3% compared with the industry’s 1.4% decline.

 

Zacks Investment Research
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Stocks to Consider

Some better-ranked stocks from the same sector are California Water Service Group (CWT - Free Report) and Primo Water (PRMW - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) at present, and IDACORP (IDA - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CWT’s 2024 EPS implies growth of 246.2% year over year. The company delivered an average earnings surprise of 85.2% in the last four quarters.

PRMW’s long-term (three to five years) earnings growth rate is 15.47%. The company delivered an average earnings surprise of 9.7% in the last four quarters.

The Zacks Consensus Estimate for IDA’s 2024 EPS implies growth of 4.1% year over year. The company delivered an average earnings surprise of 6.8% in the last four quarters.

 

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