American States Water Rides on Investments & Long-Term Contracts

American States Water Company AWR continues to benefit from its strategic investments in infrastructure upgrades and expanding customer base. The long-term contracts with military bases ensure a consistent flow of revenues for the company.

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

Factors Acting in Favor of AWR

The company’s subsidiary, American States Utility Services (“ASUS”), successfully transitioned and began operating the water and wastewater systems at two new military bases in April 2024. The long-term defense pacts lend stability to AWR’s earnings. During 2024, ASUS was awarded $56.5 million in new capital upgrade projects for all military bases it serves, with completion scheduled from 2024 to 2027. 

For full-year 2025, this subsidiary is expected to contribute 59-63 cents per share to total earnings. ASUS can effectively compete for new military base contract awards in the future, based on its strong history and expertise, which can increase this subsidiary’s contribution to total earnings.

Approved rate cases for regulated utilities provide a clear path for revenue and earnings growth, allowing the company to invest in infrastructure. Strategic capital investments are making American States Water’s infrastructure stronger and more resilient. The regulated utilities invested $235.5 million in company-funded capital projects in 2024 and expect capital expenditures of $573.1 million during 2025-2027. Capital expenditures for 2025 are expected to be $170-$210 million.

Challenges Faced by AWR

The company’s focus still remains on a single state — California, particularly Southern California. Consequently, its financial performance, to a large extent, depends on the political conditions, water supply, labor, utility cost and regulatory risks as well as economic situations, natural disasters and other risks 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 issue in the future.

AWR Stock’s Price Performance

In the past six months, shares of American States Water have risen 1.7% compared with the industry’s 13.7% growth.

Stocks to Consider

Some better-ranked stocks from the same sector are American Water Works AWK, Essential Utilities WTRG and CenterPoint Energy CNP, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AWK’s long-term (three to five years) earnings growth rate is 7.4%. The Zacks Consensus Estimate for 2025 earnings per share (EPS) implies growth of 5.9% year over year.

WTRG’s long-term earnings growth rate is 5.18%. The company delivered an average earnings surprise of 8.1% in the last four quarters. 

CNP’s long-term earnings growth rate is 7.76%. The Zacks Consensus Estimate for 2025 EPS implies growth of 8% year over year. 

 

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This article originally published on Zacks Investment Research (zacks.com).

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