Investment research report for AWR

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

American States Water Company (AWR) is a regulated water and electric utility company operating primarily in California. Its core business is the regulated water utility segment, which provides water services to residential, commercial, and industrial customers. The company also operates a regulated electric utility and a contracted services segment that provides water and wastewater services to military bases.

Financial Performance

AWR has demonstrated consistent financial performance, with steady revenue growth, strong profitability, and healthy cash flows. The company maintains a conservative capital structure with reasonable debt levels and ample liquidity from credit facilities. AWR’s regulated utility operations generate stable and predictable revenue streams, while the contracted services segment provides diversification.

Regulatory Environment

As a regulated utility, AWR’s operations and financial performance are subject to the decisions and policies of regulatory authorities, primarily the California Public Utilities Commission (CPUC). Navigating the regulatory landscape effectively, including rate cases and cost recovery mechanisms, is crucial for the company’s long-term success.

Growth and Shareholder Returns

AWR has a track record of consistent dividend payments and growth, reflecting its shareholder-friendly policies. The company’s growth prospects are supported by ongoing infrastructure investments and potential expansion opportunities in the contracted services segment. However, growth may be moderated by the regulated nature of the utility industry.

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Valuation Analysis

Price Target Analysis

The following is the price target analysis of company AWR:

PE ratio:
– Low: 25.913992326050014
– Base: 34.584165292251626
– High: 43.25433825845324

PB ratio:
– Low: 2.357295483680865
– Base: 3.1965215016675383
– High: 4.035747519654212

EPS Growth:
– Low: 4.26%
– Med: 9.79%
– High: 13.57%

DPS Growth:
– Low: 7.74%
– Med: 7.93%
– High: 8.12%

Recommendation

Unable to provide price targets since this company’s financials are highly unstable. We recommend not to hold this stock in your portfolio.

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Industry and Competitors Analysis

Competitive Landscape

Based on the provided information, AWR (American States Water Company) operates in the regulated water utility industry. Its main competitors appear to be other water utility companies operating in the United States, such as:

  1. Middlesex Water Company (MSEX)
  2. SJW Group (SJW)
  3. The York Water Company (YORW)
  4. Artesian Resources Corporation (ARTNA)
  5. California Water Service Group (CWT)
  6. Global Water Resources, Inc. (GWRS)
  7. American Water Works Company, Inc. (AWK)
  8. Essential Utilities, Inc. (WTRG)
  9. Consolidated Water Co. Ltd. (CWCO)

These companies provide water and wastewater services to residential, commercial, industrial, and other customers in various regions across the United States.

Competitive Positioning

In terms of competitive positioning, AWR seems to be a mid-sized player in the industry, with a market capitalization of around $2.7 billion and revenue of $595 million in 2023 (projected). Its profitability ratios, such as gross profit ratio, EBITDA ratio, and net income ratio, are generally in line with or slightly above the industry averages.

Compared to larger competitors like American Water Works Company (AWK) and Essential Utilities, Inc. (WTRG), AWR has a smaller market capitalization and revenue base. However, it appears to be a well-established player in its operating regions, primarily in California.

Industry Outlook

Overall, AWR operates in a relatively stable and regulated industry, with a focus on providing essential water and wastewater services to its customer base. Its competitive positioning seems to be solid within its operating regions, but it may face competition from larger national players as well as other regional water utility companies.

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Chart of Competitors

"Chart of Competitors"

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Financial Analysis

Financial Strength

The company has maintained a relatively stable return on equity and return on assets over the past few years, indicating decent profitability. The current ratio is around 1, suggesting adequate liquidity to cover short-term obligations. The debt-to-equity ratio is moderate, ranging from 0.5 to 1.2, which is reasonable for a utility company with stable cash flows.

Potential for Growth

Revenue growth has been modest, fluctuating between positive and negative year-over-year changes. Analyst estimates project revenue growth of around 5-10% annually over the next few years, indicating moderate growth expectations. The company operates in a relatively stable utility industry, which may limit high growth potential but provides predictable cash flows.

Competitive Advantage

As a regulated utility company, AWR likely benefits from a degree of monopoly power in its service areas, providing a competitive advantage. However, the company may face competition from other utilities or alternative water/energy sources in certain regions.

Quality of Management

The interest coverage ratio, which measures the ability to pay interest expenses, has generally been above 3, indicating adequate management of debt obligations. Consistent dividend payments and share repurchases suggest a shareholder-friendly capital allocation policy.

Shareholder Friendliness

AWR has maintained a consistent dividend payout ratio, typically between 40-80%, demonstrating a commitment to returning cash to shareholders. The dividend yield is around 4-5%, which is attractive for a utility company. Share repurchases have been modest, but the company has been gradually increasing its dividend over time.

Valuation

The price-to-earnings ratio has fluctuated significantly, ranging from around 20 to 60, which is not unusual for a utility company. The price-to-book ratio has generally been between 2.5 and 5, which is reasonable for a utility with stable assets. Analyst estimates suggest a forward P/E ratio of around 20-25, which may be considered fair for a regulated utility with moderate growth prospects.

Overall, American States Water Company appears to be a financially stable utility company with moderate growth prospects, a competitive advantage in its service areas, decent management quality, and a shareholder-friendly policy through consistent dividends. However, its growth potential may be limited by the nature of the utility industry.

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Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

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Chart of Absolute Metrics

"Chart of Absolute Metrics"

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Earnings Call Multi-Year Analysis

Regulated Utility Focus

The company’s core business is its regulated water and electric utility operations, which provide stable and predictable revenue streams. This regulated utility focus is a positive for long-term investors seeking consistent returns.

Consistent Dividend Growth

American States Water Company has a strong history of annual dividend increases, with a compound annual growth rate of around 9-10% over the past 5-10 years. This consistent dividend growth is an attractive feature for long-term investors.

Infrastructure Investment

The company is committed to significant ongoing investments in its water and electric infrastructure, with annual capital expenditures ranging from $140 million to $200 million. This investment helps maintain and strengthen the utility systems, which is important for long-term sustainability.

Regulatory Environment

The company operates in a regulated environment, and its financial performance is heavily influenced by regulatory decisions, such as rate cases, cost of capital proceedings, and the ability to recover investments and costs. Long-term investors should closely monitor the regulatory environment and the company’s ability to navigate it effectively.

Diversification through Contracted Services

The company’s Contracted Services segment (ASUS), which provides water and wastewater services to military installations, offers some diversification and growth opportunities. However, this segment is relatively small compared to the regulated utility operations.

Potential Risks

Key risks for long-term investors include regulatory challenges, the impact of external factors like drought and inflation, the need for potential equity financing to fund capital expenditures, and the ability to recover costs associated with emerging issues like PFAS contamination.

Overall, American States Water Company appears to be a well-managed regulated utility with a focus on consistent dividend growth and infrastructure investment. However, the regulatory environment, potential external challenges, and the need for capital raise warrant close monitoring by long-term investors.

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Financial Statements Multi Year

Regulated Utility Operations

The water and electric utility segments are the core businesses, generating stable and predictable revenue streams under regulatory oversight. Significant ongoing capital investments are required to maintain and upgrade utility infrastructure, which are recovered through regulated customer rates over time. Regulatory assets/liabilities and decisions by regulatory bodies like the CPUC can materially impact earnings and cash flows.

Contracted Services Segment

This segment provides diversification with long-term government contracts for operating water/wastewater systems. While adding stable revenues, earnings can fluctuate based on contract terms, price adjustments, and timing of modifications.

Financial Position

AWR maintains a conservative capital structure with reasonable debt levels and ample liquidity from credit facilities. Strong cash flows from regulated utilities support capital investments and shareholder dividends.

Regulatory Environment

Navigating the regulatory landscape effectively is crucial for rate recovery, cost pass-through mechanisms, and overall profitability. Environmental regulations drive increased compliance costs, which are tracked for future recovery in rates.

Growth and Dividends

Consistent financial performance with steady revenue growth and profitability improvements. Shareholder-friendly policies with a history of paying and increasing dividends.

Overall, AWR appears to be a well-managed utility company with a diversified yet regulated business model. Its focus on infrastructure investments, regulatory compliance, and shareholder returns positions it well for long-term value creation, subject to the dynamics of the regulated utility industry.

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Insider Trading Analysis

Insider Transactions

The CEO (SPROWLS ROBERT J) and CFO (TANG EVA G) have been consistently awarded a significant number of shares over the past few years, indicating strong alignment between management and shareholders. Other key insiders like HOLLOWAY ANNE M, FARROW GLADYS, and KRUGER DENISE L have also received regular stock awards. There have been some isolated instances of insider sales, but the overall trend suggests that insiders are holding on to their shares.

Long-Term Patterns

The company has maintained a consistent pattern of insider share awards, with the CEO and CFO receiving the largest grants. This suggests that the company’s leadership is focused on long-term value creation and aligning their interests with those of shareholders.

Short-Term Implications

The recent insider transactions, particularly the stock awards to the CEO and CFO, indicate that management remains confident in the company’s future prospects. The lack of significant insider selling suggests that insiders believe the stock is undervalued and have a positive outlook on the company’s long-term performance.

Overall, the insider trading patterns at American States Water Company suggest a management team that is heavily invested in the company’s success and aligned with shareholder interests. This could be a positive signal for long-term investors, as it indicates a focus on sustainable growth and value creation.

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Management Compensation Benchmark Analysis

Executive Compensation Structure

Based on the executive compensation details provided, the key insights for a long-term investor in AWR are:

The executive compensation structure at AWR appears to be reasonably well-aligned with creating long-term shareholder value. The base salary portion of total compensation for the top executives ranges from around 24% to 57%, with the majority being in the 50-60% range. This suggests a good balance between fixed and variable/incentive-based compensation.

Comparing to the other water utility companies examined (MSEX, SJW, YORW, CWT, GWRS), AWR’s executive compensation structure seems to be in the middle of the pack in terms of the base salary portion. The average base salary percentage across all the companies is around 57%, with AWR at 58.1%.

The use of stock awards and incentive plan compensation as part of the total compensation package for AWR executives indicates an emphasis on aligning their interests with long-term shareholder value creation. This is a positive sign for long-term investors.

The compensation levels for the top executives at AWR, such as the CEO, CFO, and other senior roles, appear to be reasonable and in line with industry peers. This suggests the board is being prudent in managing executive pay.

Conclusion

Overall, the executive compensation structure and levels at AWR seem to strike a reasonable balance between fixed and variable pay, with an emphasis on long-term performance and alignment with shareholder interests. This should be viewed positively by long-term investors in the company.

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Proxy Statement Analysis

Annual Incentive Plan Metrics

Based on the information provided in the DEF 14A filing, the executive compensation structure at this company appears to be reasonably well-aligned with creating long-term shareholder value. The inclusion of metrics such as Earnings per Share (EPS), Return on Equity (ROE), Customer Satisfaction, and Safety Metrics in the Annual Incentive Plan suggests a focus on profitability, efficient use of capital, customer experience, and operational excellence – all of which are important drivers of long-term sustainable growth.

Long-Term Incentive Plan Metrics

The Long-Term Incentive Plan ties a significant portion of executive compensation to Relative Total Shareholder Return (TSR), Earnings Growth, and Return on Equity (ROE). These metrics directly align executive incentives with the company’s long-term financial performance and shareholder value creation, which is well-aligned with the interests of long-term investors.

Balanced Approach

The combination of annual and long-term incentive metrics provides a balanced approach, encouraging executives to focus on both short-term operational excellence and long-term strategic objectives that drive sustainable growth and shareholder value creation.

While the specific weightings and targets for these metrics are not provided in the information given, the overall structure of the executive compensation program appears to be reasonably well-designed to incentivize executives to make decisions that support long-term value creation for shareholders. However, it’s important to note that the effectiveness of the compensation program also depends on the rigor with which the targets are set and the overall governance and oversight of the compensation committee.

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News Analysis

Positives

AWR has consistently raised its dividend for over 60 consecutive years, making it one of the longest-running dividend growth stocks. Its latest dividend increase was 8.2% in 2023.

The company continues to invest in infrastructure upgrades and expansion, which should support long-term growth.

AWR has been awarded new military base contracts, expanding its operations.

The company operates in a relatively stable and regulated utility sector, providing some defensive characteristics.

Potential Concerns

Utilities face regulatory risks and the potential for unfavorable rate case decisions that could impact profitability.

The ongoing drought conditions in parts of the western U.S. where AWR operates could strain water supplies.

Rising interest rates may increase the company’s borrowing costs for infrastructure investments.

The stock’s valuation appears relatively high compared to historical levels, which could limit near-term upside.

Overall, the consistent dividend growth, regulated business model, and infrastructure investments position AWR as a relatively defensive long-term holding. However, investors should monitor regulatory developments, drought conditions, interest rates, and valuation levels. As a utility stock, AWR may offer lower risk but also lower growth potential compared to other sectors.

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Technical Indicators Analysis

Next Week Trading

The recent price action and technical indicators suggest a neutral to slightly bearish outlook for the next week. The TEMA (Triple Exponential Moving Average) has been declining, indicating a potential downward trend. The RSI (Relative Strength Index) is in the neutral range, suggesting the stock is not overbought or oversold. The short-term SMA (Simple Moving Average) of 20 days is also below the longer-term SMAs of 50 and 200 days, further supporting a cautious near-term outlook.

Resistance and Support Levels

The current price is trading near the 50-day SMA, which could act as a support level. However, the 200-day SMA around $76.25 appears to be a stronger support level. On the upside, the stock may face resistance around the 20-day SMA at $72.05 and the recent high of $70.65.

Short-Term Investor

For a short-term investor, the current technical indicators suggest a neutral to slightly bearish outlook in the near term. The declining TEMA and the RSI in the neutral range indicate a lack of strong momentum. Short-term traders may consider waiting for a clearer trend or a pullback to the support levels before taking a position.

Long-Term Investor

From a long-term perspective, the technical indicators appear more favorable. The 200-day SMA at $76.25 provides a solid support level, and the stock has been trading above this moving average for the majority of the period shown. The long-term trend remains positive, and long-term investors may consider this as an opportunity to accumulate the stock on any pullbacks to the 200-day SMA or other support levels.

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Chart of Valuation History

"Chart of Valuation History"

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Operational Performance

AWR’s consolidated revenue grew 21.2% in 2023 to $595.7 million, driven by strong performance across its Water, Electric, and Contracted Services segments. Operating income increased 55.4% to $196.7 million, reflecting improved profitability in the Water and Contracted Services segments. The Water segment, which accounts for the majority of AWR’s business, saw a 72.3% increase in operating income to $159.2 million. The Contracted Services segment, which provides water and wastewater services to the U.S. government, reported a 16.5% increase in operating income to $26.2 million.

Financial Position

AWR’s total assets grew 10.4% to $2.25 billion, primarily due to investments in utility plant and equipment. Total liabilities increased 12.1% to $1.47 billion, with long-term debt rising to $873.7 million. Stockholders’ equity increased 9.4% to $776.1 million, reflecting the company’s strong profitability and limited dividend payouts. AWR’s total debt to total capitalization ratio was 0.54, indicating a relatively conservative financial leverage.

Cash Flows

Net cash provided by operating activities was $67.7 million, up from $56.4 million in the prior year. Capital expenditures increased 13.4% to $188.5 million, as the company continued to invest in infrastructure improvements. Free cash flow (operating cash flow less capital expenditures) was negative $120.9 million, as the company’s investment in utility assets exceeded its operating cash generation. Dividends paid to shareholders increased 8.6% to $61.2 million, reflecting AWR’s commitment to returning capital to its investors.

Regulatory Environment

AWR’s utility operations are regulated by state commissions, which approve the rates and terms of service for its water and electric services. The company has been able to recover incremental costs related to the COVID-19 pandemic through regulatory mechanisms, mitigating the impact on its financial performance. Ongoing rate case proceedings and the ability to timely recover investments in infrastructure will be critical to AWR’s future profitability and cash flows.

Overall, AWR demonstrated strong operational and financial performance in 2023, driven by growth in its core water utility business and continued success in its Contracted Services segment. The company’s conservative financial profile and focus on infrastructure investments position it well for long-term sustainable growth.

Financial Statements Annual 2023 Q2

Consistent Financial Performance

AWR has demonstrated a track record of consistent financial performance, with steady revenue growth, strong profitability, and healthy cash flows over the past few years.

Stable and Diversified Business Model

AWR operates in the regulated water and electric utility sectors, which provide stable and predictable revenue streams. The company’s diversified business model, with operations in both water and electric utilities, helps mitigate risks and provides a balanced revenue source.

Solid Liquidity and Capital Structure

As of December 31, 2022, AWR had $5.997 million in cash and cash equivalents, and a manageable debt load with a total debt to capitalization ratio of 0.51. The company’s access to a $2.8 billion revolving credit facility provides ample liquidity to support its operations and capital expenditures.

Robust Capital Investments

AWR has been consistently investing in its infrastructure, with capital expenditures of $166.2 million in 2022. This suggests the company’s commitment to maintaining and upgrading its utility assets, which is crucial for long-term sustainability and growth.

Shareholder-Friendly Policies

AWR has a history of paying consistent and growing dividends to its shareholders. The company’s dividend payout ratio of around 72% in 2022 indicates a balanced approach between rewarding shareholders and retaining funds for reinvestment in the business.

Regulatory Environment

As a regulated utility, AWR’s operations and financial performance are subject to the decisions and policies of regulatory authorities. Navigating the regulatory landscape effectively is crucial for the company’s long-term success.

Overall, AWR’s financial statements demonstrate a well-managed, financially stable, and shareholder-friendly utility company that is well-positioned for long-term growth and value creation for its investors.

Financial Statements Annual 2022 Q2

Regulated Utility Operations

AWR’s regulated water and electric utility segments (GSWC and BVESI) account for the majority of its revenues and operating income. The water and electric utility operations are heavily regulated by the California Public Utilities Commission (CPUC), which approves rates and recovery of costs. Regulatory assets and liabilities are a significant part of the balance sheet, reflecting the impact of rate regulation. The water and electric utilities continue to make substantial capital investments to maintain and upgrade their infrastructure, which are expected to be recovered through customer rates.

Contracted Services Segment

The contracted services segment (ASUS and its subsidiaries) operates and maintains water and wastewater systems at various U.S. military bases under long-term, firm fixed-price contracts. Revenues from the contracted services segment are dependent on the terms of these 50-year contracts with the U.S. government, including economic price adjustments and potential contract modifications. The contracted services segment provides a diversified revenue stream, but its earnings and cash flows can be impacted by the timing of price adjustments and contract modifications.

Financial Position and Liquidity

AWR maintains a sound capital structure and has access to credit facilities to fund its operations and capital expenditures. The regulated utilities are able to recover their capital investments and earn a return through the ratemaking process, supporting their financial position. AWR’s subsidiaries pay dividends to the parent company, which provides the majority of AWR’s cash flows to pay dividends to its shareholders.

Regulatory and Environmental Matters

AWR’s regulated utilities are subject to various environmental regulations, which have resulted in increased capital and operating costs. The utilities have mechanisms in place, such as balancing accounts, to recover these environmental compliance costs through customer rates. Regulatory decisions by the CPUC, including the potential elimination of certain ratemaking mechanisms, can impact the utilities’ earnings and cash flows.

COVID-19 Pandemic Impact

The COVID-19 pandemic has increased the amount of delinquent customer accounts, leading to higher bad debt expenses for the regulated utilities. However, the CPUC has authorized the utilities to track these incremental COVID-19 related costs in memorandum accounts for future recovery. The pandemic has also caused some delays in capital projects and construction activities, but the overall impact has been manageable.

In summary, AWR’s financial performance is heavily dependent on the regulated water and electric utility operations, which are subject to extensive regulatory oversight and environmental compliance requirements. The contracted services segment provides diversification, but its earnings are tied to the terms of long-term government contracts. AWR maintains a strong financial position to support its capital investment program and shareholder dividends.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Water Segment

Diluted earnings per share from the water segment decreased $0.26 to $0.48 per share in Q1 2024 compared to Q1 2023. Excluding the impact of retroactive rate increases and estimated revenues subject to refund in 2023, adjusted diluted earnings per share from the water segment increased $0.07 or 17.1% in Q1 2024.

The increase in adjusted water earnings was driven by:

  • Higher water operating revenues of $52 million due to the third-year rate increases in 2024
  • Higher water supply costs of $0.5 million, which are passed through to customers
  • Higher operating expenses of $0.9 million, excluding supply costs
  • Higher interest expense, net of interest income, of $1.6 million
  • Favorable changes in certain flow-through income taxes and permanent items

Electric Segment

Diluted earnings from the electric utility segment decreased $0.01 per share in Q1 2024 compared to Q1 2023, primarily due to not having new rates while awaiting the processing of the pending electric general rate case.

Contracted Services Segment

Diluted earnings from the contracted services segment decreased $0.02 per share in Q1 2024 compared to Q1 2023, due to a decrease in construction activity and higher operating expenses, partially offset by an increase in management fee revenue.

The contracted services segment is expected to contribute $0.50 to $0.54 per share for the full 2024 year.

Liquidity and Financing

AWR entered into an at-the-market (ATM) equity offering program in Q1 2024, raising $162 million in net proceeds to pay down outstanding borrowings.

AWR, GSWC, and BVES have revolving credit facilities to support operations and capital expenditures. GSWC and BVES are required to pay off borrowings under their credit facilities within 24-month periods. GSWC and BVES have pending financing applications with the California Public Utilities Commission to authorize additional long-term debt and equity issuances.

Regulatory Matters

GSWC received a final decision on its 2022-2024 general rate case, with new rates retroactive to January 1, 2022. GSWC filed a new general rate case application for 2025-2027, requesting continuation of its revenue decoupling mechanism. BVES filed a new general rate case application for 2023-2026, with new rates expected to be retroactive to January 1, 2023.

New drinking water regulations for PFAS compounds and hexavalent chromium are expected to increase GSWC’s future capital and operating costs.

Overall, the water segment continues to be the primary driver of AWR’s performance, with the contracted services segment providing additional earnings contribution. The company is actively managing its liquidity and financing needs to support its capital investment programs at the regulated utilities.

Financial Statements Quarterly 2024 Q1

Water Segment

The company received a final decision on its general rate case in June 2023, which approved retroactive rate increases for 2022 and 2023. This resulted in a significant increase in water revenues and earnings in 2023. The company was also able to reverse a regulatory liability related to its cost of capital proceeding, further boosting water segment earnings. Capital expenditures at the water segment remain elevated as the company continues to invest in infrastructure renewal and replacement. The company has filed a new general rate case application for 2025-2027, seeking to continue using a revenue decoupling mechanism.

Electric Segment

Electric revenues and earnings were relatively flat year-over-year as the company awaits a decision on its pending general rate case for 2023-2026. The company continues to invest in its electric infrastructure, including wildfire mitigation efforts, which will require future rate recovery.

Contracted Services Segment

This segment continues to generate stable earnings, benefiting from new contract awards and construction activity. The company was awarded two new long-term contracts to operate and maintain water and wastewater systems at military bases, further expanding its footprint.

Liquidity and Financing

The company has secured new revolving credit facilities for both the parent company and its regulated utility subsidiaries, providing ample liquidity to fund capital expenditures and operations. Debt levels are expected to increase to support the capital investment programs at the regulated utilities. The company maintains strong credit ratings, which should enable it to access the debt and equity markets as needed.

Dividends

The company has a long history of paying and increasing its quarterly cash dividends, which is an attractive feature for long-term investors.

Overall, the company’s regulated water and electric utility operations continue to perform well, benefiting from favorable regulatory outcomes and ongoing infrastructure investment. The contracted services segment provides additional diversification and growth opportunities. The company’s sound financial position and disciplined approach to capital allocation make it an attractive long-term investment.

Financial Statements Quarterly 2023 Q4

Water Segment

The company received a final decision on its general rate case application from the California Public Utilities Commission (CPUC) on June 29, 2023. This resulted in new water rates for 2022 and 2023 that are retroactive to January 1 of those years. The impact of these retroactive rates has been reflected in the results.

The final decision on the cost of capital proceeding also resulted in a change in estimate, with the company reversing $93 million in revenues subject to refund that had been recorded in 2022 and the first quarter of 2023.

Excluding the impact of the retroactive rates and the change in estimate from the cost of capital proceeding, the water segment saw a 40% increase in adjusted diluted earnings per share for the second quarter and a 36.7% increase for the first half of 2023 compared to the same periods in 2022. This was driven by the new 2023 water rates, higher interest income, and favorable changes in certain flow-through taxes.

Electric Segment

Earnings from the electric utility segment decreased slightly in both the second quarter and first half of 2023 compared to the same periods in 2022, as the company awaits a decision on its pending electric general rate case that will set new rates for 2023-2026.

Contracted Services Segment

This segment saw increases in diluted earnings per share of 20% for the second quarter and 50% for the first half of 2023 compared to the same periods in 2022. This was driven by higher construction activity and an increase in management fee revenue.

Liquidity and Financing

On June 28, 2023, the company entered into new credit agreements, replacing the previous credit facility. The new agreements provide for a total of $3.5 billion in unsecured revolving credit facilities to support the operations and capital expenditures of the regulated utilities and the contracted services segment.

The company’s credit ratings were recently affirmed, with S&P revising the outlook from negative to stable for both American States Water Company and Golden State Water Company.

Overall, the key insights are the positive impacts from the final decisions on the water general rate case and cost of capital proceeding, the continued growth in the contracted services segment, and the company’s sound liquidity and financing position supported by the new credit facilities and stable credit ratings.

Financial Statements Quarterly 2023 Q3

Water Segment

Received a proposed decision on the general rate case, which approved retroactive rate increases for 2022 and 2023. This resulted in a $0.36 per share positive impact in Q1 2023.

Excluding the retroactive rate impact, adjusted diluted earnings for the water segment increased $0.09 per share, driven by:

  • $90 million increase in water revenues from the estimated 2023 rate increases
  • $16 million increase in water supply costs
  • $13 million increase in operating expenses excluding supply costs
  • $11 million increase in interest expense and other expenses

Electric Segment

Earnings decreased $0.01 per share as the segment awaits a decision on the pending electric general rate case, while experiencing higher operating and interest expenses.

Contracted Services Segment

Earnings increased $0.07 per share due to higher construction activity and management fee revenue, partially offset by higher operating and interest expenses.

Liquidity and Financing

AWR and GSWC have classified their outstanding credit facility and intercompany borrowings, respectively, as current liabilities, creating negative working capital conditions.

AWR is confident it will be able to execute a new credit facility agreement to repay the existing credit facility and support operations, given its consistent cash flows, A credit ratings, and history of obtaining credit facilities and raising debt.

GSWC may also consider a separate credit facility or a new intercompany borrowing agreement with AWR to address its liquidity needs.

Regulatory Matters

GSWC received a proposed decision on its general rate case, approving retroactive rate increases for 2022 and 2023.

GSWC also has a pending cost of capital proceeding, which has resulted in an estimated $93 million regulatory liability for revenues subject to refund.

BVES filed a new general rate case application to determine rates for 2023-2026.

BVES continues to incur costs for wildfire mitigation and vegetation management, which are being tracked in regulatory assets for future recovery.

Overall, the key insights highlight the importance of the regulatory environment, the company’s ability to manage liquidity and financing, and the performance of the different business segments, particularly the water segment which received favorable rate case outcomes.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Regulated Utility Focus

American States Water Company is primarily focused on its regulated water and electric utility operations, which provide stable and predictable revenue streams. This regulated utility focus is a positive for long-term investors.

Consistent Dividend Growth

The company has a strong dividend history, with a compound annual growth rate of 9.4% over the last 5 years. This consistent dividend growth is an attractive feature for long-term investors.

Ongoing Infrastructure Investment

The company is committed to investing $160 million to $200 million annually in its regulated utility infrastructure. This investment helps maintain and strengthen the utility systems, which is important for long-term sustainability.

Regulatory Challenges

The company faces some regulatory challenges, particularly with the pending electric general rate case. The delay in the electric rate case decision and the small size of the Bear Valley Electric segment compared to larger utilities could pose challenges. Long-term investors should monitor the progress of this regulatory process.

PFAS Costs

The company is tracking PFAS-related costs in a memo account, but the capital costs associated with PFAS remediation are not yet included in the pending water general rate case. Investors should watch for how the company is able to recover these costs in the future.

Contracted Services Segment

The company’s Contracted Services segment, which provides water and wastewater services to military installations, appears to be a growing part of the business. Investors should monitor the performance and growth potential of this segment.

Overall, American States Water Company appears to be a well-managed regulated utility with a focus on consistent dividend growth and infrastructure investment. However, the regulatory challenges and potential PFAS-related costs are areas that long-term investors should continue to monitor closely.

Earnings Call Analysis 2024 Q1

Regulatory Environment

The company has received constructive regulatory outcomes from the California Public Utilities Commission (CPUC) on its water general rate case and cost of capital proceedings, allowing it to continue investing in infrastructure. The company has filed for new water rates for 2025-2027, requesting $611.4 million in capital investments over the rate cycle. The company’s electric utility has also filed a general rate case for 2023-2026, including additional capital expenditures and recovery of wildfire mitigation costs. The company has been able to utilize mechanisms like the water cost of capital mechanism to adjust its authorized return on equity and cost of debt.

Growth and Investment

The company has invested a record high of $175.7 million in infrastructure at its regulated utilities in 2023. The company’s water utility subsidiary, Golden State Water, has seen its average rate base grow at a compound annual growth rate of 10.3% from 2018 to 2024. The company’s contracted services segment, ASUS, has been awarded new contracts with the U.S. government, providing opportunities for future growth.

Financial Performance

The company has reported strong financial results, with adjusted earnings per share increasing by $0.41 in 2023 compared to 2022. The company has maintained high credit ratings, which is important for its ability to access capital markets. The company plans to seek $150 million to $200 million in additional capital through equity offerings over the next three years.

Dividend

The company has a long history of annual dividend increases, with a compound annual growth rate of 9.4% over the last five years. The company’s strong dividend history is a compelling part of its investment story.

Overall, the company appears to be well-positioned for long-term growth, with a constructive regulatory environment, a focus on infrastructure investment, and a strong financial profile, including a reliable and growing dividend. However, investors should closely monitor any potential regulatory challenges, such as the issues raised in the Cal Water case, and the company’s ability to execute on its growth plans.

Earnings Call Analysis 2023 Q4

Regulatory Environment

The company has been proactive in filing for rate case updates and cost of capital adjustments to ensure timely recovery of investments and operating costs. The proposed capital expenditure budget of $611.4 million over the 2025-2027 rate cycle is substantial, indicating the company’s commitment to infrastructure improvements. Balancing rate increases with customer affordability is an ongoing challenge that the company seems to be managing carefully.

Growth Opportunities

The company’s regulated water utility segment has shown strong rate base growth, with a 10.3% CAGR from 2018 to 2024. The contracted services segment (ASUS) has been awarded new military base contracts, demonstrating the company’s ability to compete for and secure long-term, stable revenue streams. The new 15-year contract at Joint Base Cape Cod represents an innovative approach to military base privatization, which could open up additional opportunities.

Financial Performance and Liquidity

The company has maintained consistent earnings growth, with adjusted EPS increasing by $0.43 per share year-over-year for the first nine months of 2023. The company is considering raising additional equity capital of $150 million to $200 million over the next 3 years to fund business operations and pay down debt, which could be a positive for long-term investors. The company’s strong dividend growth history, with a 9.4% CAGR over the last 5 years, is an attractive feature for long-term investors.

Overall, the company appears to be well-positioned for long-term growth, with a focus on regulatory compliance, infrastructure investment, and diversification of its revenue streams. However, the analyst questions suggest some potential concerns around the impact of the higher proposed capital expenditures on customer affordability and the company’s ability to effectively execute on the new military base contract structure.

Earnings Call Analysis 2023 Q3

Regulatory Environment

The company was able to secure constructive regulatory outcomes in its recent water general rate case and cost of capital proceedings with the California Public Utilities Commission (CPUC). This provides visibility on future earnings and allows the company to continue investing in infrastructure.

The electric rate case is still pending, and the company expects new rates to be retroactive to January 2023 once the decision is issued, likely in 2024.

The company plans to file its next water general rate case for 2025-2027 in the third quarter of this year, aiming to embed the full revenue adjustment mechanism (RAM) in the filing.

Earnings Growth and Dividends

The company reported strong adjusted earnings growth in the second quarter, driven by the new 2023 water rates and higher construction activity in the contracted services segment.

The company’s Board approved an 8.2% increase in the quarterly dividend, reflecting confidence in the company’s ability to achieve long-term sustainable earnings growth.

The company has a long history of paying and increasing dividends, with 69 consecutive years of dividend increases.

Contracted Services (ASUS) Segment

The ASUS segment contributed to earnings growth in the quarter and is on track to meet its targeted earnings contribution for the year.

The company remains confident in its ability to compete for new military base contract awards, given its proven track record of managing water and wastewater services for military bases.

Potential Risks and Uncertainties

The delay in the electric rate case decision could create some near-term earnings uncertainty, as the company awaits the retroactive rate adjustment.

The company’s plan to issue additional equity in the next 12-18 months to fund its current businesses may dilute existing shareholders.

Analyst questions suggest a focus on the potential impact of changes in the cost of capital on the company’s earnings, which should be monitored going forward.

Overall, the company appears to be in a strong position, with constructive regulatory outcomes, earnings growth, and a commitment to shareholder returns through dividends. However, investors should continue to monitor the pending electric rate case and the company’s equity issuance plans as potential risks and uncertainties.

Earnings Call Analysis 2023 Q2

Regulatory Matters

The proposed decision in the water general rate case is a positive development, as it allows American States Water to continue investing in infrastructure and sets new water rates for 2022-2024 retroactively. The proposed decision on the cost of capital proceeding is still unclear in terms of the retroactive application, but it allows for the continuation of the water cost of capital mechanism. The electric general rate case filing is pending, and a decision is not expected until 2024, which could create some uncertainty in the near term.

Growth and Capital Expenditures

American States Water has been able to grow its water rate base at a compound annual growth rate of 11.3% since 2018, which is a positive indicator for future growth. The company plans to invest $140-$160 million in infrastructure investments at its regulated utilities in 2023, which should help maintain the growth in rate base. The potential impact of PFAS regulations on the company’s capital expenditures is still unclear, but it could be a significant cost in the future.

Contracted Services (ASUS)

ASUS, the company’s contracted services segment, has been performing well, contributing $0.15 per share in the first quarter, up from $0.08 per share in the same period last year. ASUS is on track to meet its targeted earnings contribution of $0.45 to $0.49 per share for 2023, which is a positive for the overall business.

Liquidity and Financing

The company is in the process of securing two separate credit facilities, one for the parent company and one for the Golden State Water subsidiary, which could potentially improve the credit rating outlook for the water utility. The company does not expect to issue additional equity for at least the next 18-24 months, which could be viewed positively by investors.

Overall, the key insights suggest that American States Water is making progress on its regulatory matters and capital investment plans, while its contracted services segment continues to perform well. However, the potential impact of PFAS regulations and the timing of the electric general rate case decision remain areas of uncertainty that long-term investors should monitor.

Earnings Call Analysis 2023 Q1

Regulatory Delays

The company is facing significant delays in receiving regulatory decisions from the California Public Utilities Commission (CPUC) on its general rate case and cost of capital proceedings. This has negatively impacted the company’s 2022 earnings by an estimated $0.38 per share. The uncertainty around the timing and outcome of these regulatory decisions is a key risk factor.

Infrastructure Investment

The company has been investing heavily in its infrastructure, spending a record $167.4 million in 2022. This investment is expected to continue, with $140-$150 million projected for 2023. The growing rate base provides a foundation for future earnings growth.

Contracted Services Segment

The company’s Contracted Services segment, which provides water and wastewater services to military installations, has experienced some challenges in 2022 but is expected to contribute $0.45-$0.49 per share in 2023.

Dividend Growth

The company has a strong dividend history, with 68 consecutive years of annual dividend increases. The 8.9% dividend increase in 2022 suggests the company’s confidence in its long-term earnings potential.

Potential Equity Needs

The company’s comments on the potential need for equity issuance in the next 18-24 months suggest that the company may need to access the capital markets to fund its growing capital expenditure program, particularly if regulatory decisions are further delayed.

Analyst Questions

The analyst questions highlight concerns around the company’s regulatory environment, the impact of rising interest rates, and the potential need for equity financing. The company’s responses suggest a focus on maintaining its credit ratings and managing its capital structure to support its long-term growth plans.

Overall, the key insights suggest that while the company has a strong operational and financial foundation, the regulatory uncertainty and potential capital needs are important factors for long-term investors to consider.

Earnings Call Analysis 2022 Q4

Regulatory Delays

The delay in the final decision on the water general rate case at Golden State Water has negatively impacted earnings so far in 2022. This is a timing issue, and once the decision is made, the new rates will be retroactive to January 1, 2022, allowing the company to record the cumulative impact.

Cost of Capital Proceeding

The company has recorded a reduction in revenues to reflect the estimated impact of a lower cost of debt requested in the pending cost of capital application. The outcome of this proceeding could further impact future earnings.

Drought Conditions

The severe drought in California has led to reduced water allocations from the State Water Project. The company is tracking incremental drought-related costs for future recovery, but this could still impact operations and earnings.

ASUS Segment

The Contracted Services segment (ASUS) has faced challenges with construction activity due to supply chain issues and other delays, leading to lower earnings. However, the company expects these issues to improve in 2023, projecting higher earnings from this segment.

Dividend Growth

The company has a strong history of dividend growth, with a 9.2% compound annual growth rate over the last 10 years. This is a compelling aspect of the investment story for long-term investors.

Overall, the key insights are the importance of monitoring the regulatory environment, the impact of external factors like drought, and the company’s ability to manage its operations and diversified business segments to deliver consistent financial performance and shareholder returns over the long term.

Earnings Call Analysis 2022 Q3

Regulatory Delays

The company is facing delays in receiving final decisions from the California Public Utilities Commission (CPUC) on its water general rate case and cost of capital application. This has negatively impacted earnings in the short-term, but the company expects the decisions to be issued in the second half of 2022.

Pension Plan Investments

The company’s investments to fund its retirement plan have resulted in significant losses compared to gains in the prior year period. This is an external factor beyond the company’s control that has impacted earnings.

Dividend Growth

The company has a strong history of paying and increasing dividends, with the latest increase of nearly 9%. This demonstrates the company’s commitment to shareholder returns.

Capital Expenditures

The company is investing heavily in infrastructure improvements at its regulated utilities, which should support future growth in rate base and earnings.

Financing Plans

The company plans to renew and extend its credit facility and issue long-term debt to fund its capital expenditure program, while not expecting to issue additional equity in the next three years.

ASUS Performance

The company’s contracted services segment (ASUS) faced some delays in construction activity, but the company reaffirmed its guidance for ASUS to contribute $0.45 to $0.49 per share in 2022.

Overall, the key insights suggest that the company is facing some near-term regulatory and external headwinds, but has a strong financial position, capital investment program, and commitment to shareholder returns that should benefit long-term investors. The company’s ability to navigate the regulatory environment and execute on its growth plans will be critical going forward.

Earnings Call Analysis 2022 Q2

Timing issues with the regulatory process

Timing issues with the regulatory process are impacting current earnings, but the company expects the delayed rate case decision to be retroactive to January 1, 2022, providing a catch-up in future quarters.

Cost of capital management

The company is proactively managing its cost of capital, having filed an application to lower its cost of debt, which will provide a near-term earnings benefit once approved. However, the outcome of the ROE request is still uncertain.

Consistent dividend growth

The company has a strong track record of consistent dividend growth, with a 10-year CAGR of nearly 10%, and the board appears willing to maintain this growth even if the cost of capital outcome is less favorable.

Regulated utility business model

The company’s regulated utility business model provides stability, with a growing rate base (11.3% CAGR since 2018) and ongoing infrastructure investment plans.

Drought conditions in California

The drought conditions in California are a risk factor, but the company has regulatory mechanisms in place to recover incremental drought-related costs.

Contracted services segment

The contracted services segment (ASUS) provides diversification, and the company remains confident in its ability to compete for new military base contracts.

Overall, the company appears to be well-positioned for long-term growth, with a focus on prudent capital investment, regulatory outcomes, and shareholder returns. The key risks to monitor are the timing and outcome of the pending regulatory proceedings, as well as the potential impact of the California drought on the regulated water business.

Earnings Call Analysis 2022 Q1

Strong financial performance in 2021

The company reported a 9.4% increase in earnings per share in 2021, driven by higher performance in the Water segment due to new authorized rates.

Continued investment in infrastructure

The company spent a record $142.6 million in 2021 on company-funded capital projects at the regulated utilities, which is critical for providing safe and reliable service.

Regulatory updates

The company reached a joint settlement agreement on the Golden State Water general rate case, which if approved, will allow the company to continue investing in the water systems. The settlement agreement includes a significant increase in authorized rate base.

Contracted services segment performance

ASUS, the contracted services segment, had another strong year with record net income and earnings per share, despite some reduction in construction activity. The company remains confident in its ability to compete for new military base contracts.

Focus on ESG

The company has a strong focus on ESG, including setting a target to reduce greenhouse gas emissions by 60% by 2035 and maintaining a high level of diversity on the Board of Directors.

Potential risks and uncertainties

Potential risks and uncertainties include the ongoing cost of capital proceeding, where there is a wide gap between the company’s request and the public advocate’s recommendation, as well as potential pressure on the electric utility side due to rising power purchase costs.

Shareholder returns

The company’s consistent execution on its strategies has resulted in a strong 5-year total shareholder return of 148%, and the company has a long history of annual dividend increases.

Overall, the company appears to be well-positioned for long-term growth, with a focus on infrastructure investment, regulatory settlements, and a strong ESG profile. However, the cost of capital proceeding and potential pressure on the electric utility side warrant close monitoring.

Earnings Call Analysis 2021 Q4

Consistent Financial Performance

The company has demonstrated consistent financial performance, with 11.7% year-over-year earnings per share growth in 2021 (10.7% on an adjusted basis). This suggests the company has a strong and stable business model.

Regulatory Outlook

The pending general rate case for the water utility subsidiary, Golden State Water Company, is a key focus area. The company has reached a settlement in principle with the regulator on nearly all items, which should provide clarity on future rates and capital expenditures. However, the consolidation of two customer service areas remains an unsettled matter.

Inflation and Cost Pressures

The company is experiencing some inflationary pressures on materials and other expenses, particularly in its ASUS contracted services segment. While the regulated utility is working to manage these costs, the impact may not be fully reflected in the pending rate case filing, which was submitted in 2020.

Dividend Growth

The company has a long history of consistent dividend payments and growth, with a compound annual dividend growth rate of over 7% in the long term. This is an attractive feature for long-term investors.

Regulatory Risks

The delays in the cost of capital proceeding and the uncertainty around the final outcome suggest potential regulatory risks that long-term investors should monitor closely. The company’s ability to recover increased costs and earn its authorized returns could be impacted.

Analyst Questions

The analyst questions suggest a focus on the company’s ability to manage inflation and cost pressures, as well as the regulatory process and its impact on the company’s financial performance. Long-term investors should pay attention to these areas and the company’s responses.

Overall, the company appears to have a strong and stable business model, but long-term investors should closely monitor the regulatory environment and the company’s ability to manage cost pressures and recover investments through the ratemaking process.

Earnings Call Analysis 2021 Q3

Consistent Financial Performance

American States Water Company has demonstrated consistent earnings growth, with a 12.1% increase in adjusted earnings per share year-to-date. This suggests the company has a strong and stable financial foundation.

Regulatory Environment

The company is awaiting key decisions from the California Public Utilities Commission (CPUC) regarding its cost of capital and general rate case filings. The outcome of these regulatory proceedings will be crucial for the company’s future earnings and growth.

Infrastructure Investment

The company is making timely investments in its water and electric systems, which is important for maintaining reliability and meeting customer needs. The growth in the company’s rate base over the past few years indicates a focus on infrastructure upgrades.

Dividend Growth

The company has a long history of annual dividend increases, with the latest 9% increase marking the 67th consecutive year of dividend growth. This demonstrates a commitment to shareholder returns.

Contracted Services Segment

The ASUS (Contracted Services) segment has faced some near-term headwinds, such as higher construction costs, but the company remains optimistic about its long-term prospects, citing a strong relationship with the U.S. government and expertise in managing military base water and wastewater systems.

Potential Risks

The company’s exposure to the ongoing drought in California and the potential impact on water usage and conservation efforts, as well as the outcome of the regulatory proceedings, should be closely monitored by investors.

Overall, American States Water Company appears to be a well-managed utility with a focus on consistent financial performance, infrastructure investment, and shareholder returns. However, the regulatory environment and potential operational challenges, such as the drought, warrant close attention from long-term investors.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.