American States Water Benefits From Military Contracts & Investments

American States Water Company AWR is set to benefit from an expanding customer base, which increases the demand for its services and boosts its financial performance. The company also gains from regulatory approvals and long-term contracts with military bases, ensuring a consistent flow of revenues.

However, this Zacks Rank #3 (Hold) company faces risk related to groundwater contamination and excessive dependency on a single state for a significant portion of its earnings.

Advantageous Factors for AWR

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.

The company’s subsidiary, American States Utility Services (“ASUS”), made successful transitions and started operations of the water and wastewater systems at two new military bases in April 2024. The long-term defense pacts lend stability to its earnings. During 2024, ASUS was awarded $56.5 million in new capital upgrade projects for all military bases it serves, with completion scheduled through 2027.

ASUS can effectively compete for new military base contract awards in the future, based on its strong history and expertise, which can increase the 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 resilient. The regulated utilities are projected to invest nearly $573.1 million during 2025-2027.

Threats for AWR

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.

The company’s focus remains on a single state – California, particularly Southern California. Consequently, its financial performance largely depends on political, water supply, labor, utility cost, and regulatory risks, as well as economic conditions, natural disasters, and other factors affecting the state.

AWR Stock’s Price Performance

In the past month, shares of American States Water have lost 3.4% against the industry’s 0.1% growth.

Stocks to Consider

Some better-ranked stocks from the same industry are Consolidated Water CWCO, California Water Service Group CWT and Global Water Resources GWRS, 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.

The Zacks Consensus Estimate for CWCO’s 2025 earnings per share (EPS) is pinned at $1.12. It delivered an average earnings surprise of 40.1% in the last four quarters. 

CWT’s long-term (three to five years) earnings growth rate is 8.78%. It delivered an average earnings surprise of 51.6% in the last four quarters. 

The Zacks Consensus Estimate for GWRS’ 2025 EPS is pinned at 20 cents, indicating a year-over-year decline of 23.1%. The Zacks Consensus Estimate for 2025 sales is pinned at $55.85 million, indicating year-over-year growth of 6%.

 

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

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