On Jan 7, Zacks Investment Research upgraded
American States Water Company
) to a Zacks Rank #1 (Strong Buy).
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Why the Upgrade?
Consistent performance from this water utility and strong
third-quarter results sparked upward earnings estimate
revisions. Moreover, this utility delivered positive
earnings surprises in the last 4 quarters with an average beat of
22.0%. The long-term expected earnings growth rate for this stock
The major challenge ahead for water utility operators in the U.S.
is the aging water and sewer infrastructure. Water utilities like
American States Water Company among others have extensive plans
to develop and upgrade their existing assets. The company is on
course to spend $255 million over the 2013-2015 time frame.
At the same time the company has been successfully managing its
debts, leading to a much reduced interest burden. In the first
nine months of 2013, the company successfully curtailed net
interest expenses by 2.3% to $17.4 million from $17.8 million
incurred in the year-ago period.
Consistent dividend payments since 1931 also make the shares
attractive. In Sep 2013, the company completed a 2-for-1 stock
split of the common shares while increasing the quarterly
dividend payout by 14.1%. The current annual dividend is 81
cents, reflecting a dividend yield of 2.9%.
The present valuation of the company in comparison to its peers
also makes the shares attractive. The forward P/E multiple of
19.25% is trading at a marginal discount to its peer group
average of 19.28%. Return on Equity of the company is 13.1%,
43.9% higher than the peer group average of 9.1%.
The Zacks Consensus Estimate for 2013 moved higher by 2.8% to
$2.66 per share over the last 60 days, as 3 out of 4 estimates
were raised. The Zacks Consensus Estimate for 2014 increased 2.1%
to $1.43 per share over the same period, as 4 out of 5 estimates
Other Stocks to Consider
Other players in the water supply industry, which look attractive
at current levels, include
American Water Works Company Inc.
Aqua America Inc.
Connecticut Water Service Inc.
). All these stocks carry a Zacks Rank # 2 (Buy).