American Water Reports Earnings Per Share Rise from 1.66 to 1.80

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American Water Reports Earnings Per Share Rise from 1.66 to 1.80

American Water Works Company, Inc. (NYSE: AWK) reported strong financial performance in its earnings call for the third quarter of 2024. Earnings per share (EPS) increased from $1.66 in the same period last year to $1.80. The company confirmed its full-year EPS guidance for 2024 at $5.25 to $5.30, and provided an optimistic outlook for 2025, anticipating significant growth due to capital investments and strategic acquisitions. The call, managed by Aaron Musgrave, also addressed regulatory developments, financial strategies, and the company's commitment to customer pricing and infrastructure renewal.

Key Points:

  • American Water's third-quarter earnings per share increased from $1.66 to $1.80.
  • Full-year EPS guidance for 2024 was confirmed at $5.25 to $5.30, with an optimistic initiation for 2025 at $5.65 to $5.75 per share.
  • The acquisition of Butler Area Sewer Authority added 15,000 customers, leading to a total of approximately 50,000 new customers gained in 2024.
  • The capital investment strategy forecasts a base growth rate of 8% to 9% over the next decade.
  • Regulatory activities include rate cases in multiple states, with decisions expected by December 2024.
  • The total debt-to-equity ratio stood at 56%, with a targeted dividend payout ratio of between 55% and 60%.

Company Outlook:

  • American Water anticipates an 8% EPS growth for 2025, with guidance set between $5.65 and $5.75 per share.
  • Plans to invest between $17 billion and $18 billion from 2025 to 2029, with a focus on environmental compliance.
  • The company projects a total investment of $40 billion to $42 billion over the next decade.

Negative Points:

  • A cybersecurity incident was reported; however, operations were not affected.
  • The company will begin making annual cash tax payments of approximately $100 million due to an alternative minimum tax starting in 2025.

Positive Points:

  • Six acquisitions valued at a total of $349 million were completed during the year.
  • The larger acquisition pipeline now exceeds 1.5 million connections.
  • Long-term contracts are in place to mitigate electric cost risks.
  • Accelerated capital expenditures and equity injections into operating companies are aimed at achieving adjusted earnings.

Shortcomings:

  • A potential earnings impact of $0.03 per share due to the loss of interest income from a $720 million bond after 2026.

Q&A Highlights:

  • The frequency of rate cases stems from the need for timely investment recovery.
  • Regular rate case filings are part of the strategy to ensure investments are recouped in a timely manner.
  • The company aims to recover approximately 75% of its investments through periodic adjustments.

In summary, American Water's earnings call highlighted the company's strong financial health and strategic initiatives expected to drive growth. With a robust capital investment strategy and a proactive approach to regulatory filings, American Water positions itself for continued success in the utilities sector. The company management is confident in balancing customer pricing with necessary investments in infrastructure while managing financial risks and pursuing growth opportunities.

InvestingPro Forecasts: American Water Works Company's strong financial performance and optimistic outlook are further supported by data from InvestingPro. The company's market capitalization stands at $27.07 billion, reflecting its significant presence in the utilities sector.

One of the InvestingPro insights emphasizes that American Water Works has raised its dividend for 11 consecutive years, aligning with the company's commitment to shareholder value mentioned during the earnings call. This stable dividend growth, combined with a current yield of 2.26%, highlights the company's financial stability and attractiveness to income-focused investors.

The company’s revenue growth of 7.68% over the past twelve months and robust EBITDA of $2.32 billion demonstrate American Water's ability to generate steady cash flows in support of its ambitious capital investment plans of $17 billion to $18 billion from 2025 to 2029.

However, it is important to note that American Water Works trades at a relatively high P/E ratio of 28.42. InvestingPro insights suggest this is considered high in relation to near-term earnings growth. This valuation metric could be an important point for investors to consider in light of the projected 8% EPS growth for 2025.

For readers interested in a more comprehensive analysis, InvestingPro offers eight additional insights about American Water Works to provide a deeper understanding of the company's financial health and market position.