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American Water Works (AWK) Down 4.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for American Water Works (AWK). Shares have lost about 4.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Water Works due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

American Water Q1 Earnings Miss Estimates, Sales Beat

American Water Works Company posted first-quarter 2023 operating earnings per share (EPS) of 91 cents, which lagged the Zacks Consensus Estimate of 92 cents by 1.09%. The bottom line improved 4.6% from the year-ago earnings of 85 cents per share.

Total Revenues

Total revenues of $938 million surpassed the Zacks Consensus Estimate of $878 million by 6.8%. The top line increased 11.4% from the year-ago figure of $842 million.

Segment Details

Regulated businesses’ revenues in first-quarter 2023 were $860 million, up 10.5% from the year-ago quarter level. The year-over-year surge in revenues was primarily due to authorized revenue increases resulting from completed general rate cases and infrastructure proceedings to recover incremental capital and acquisition investments.

Other revenues in first-quarter 2023 were $78 million compared with $64 million in the year-ago period.

Highlights of the Release

Total operating expenses for the first quarter were $643 million, up 7.9% from the year-ago quarter’s $596 million due to an increase in operating and maintenance expenses.

The operating income was $295 million, up 19.9% from the year-ago figure of $246 million. Since Jan 1, 2023, new rates approved by different commissions under which the company operates have increased the total revenues of the company annually by $279 million.

American Water Works continues to expand operations through acquisitions and organic means. Through five closed acquisitions in two states, it added 1,400 customers to its base as of Mar 31, 2023. AWK’s 27 pending acquisitions (as of Mar 31), when completed, would add another 48,200 customers.

In first-quarter 2023, American Water Works invested $538 billion in infrastructure improvements to provide quality services to its expanding customer base.

Financial Highlights

Cash and cash equivalents amounted to $213 million as of Mar 31, 2023, compared with $85 million as of Dec 31, 2022.

The total long-term debt was $10,487 million as of Dec 31, 2023, down 4.01% from $10,926 million as of Dec 31, 2022.

During the first quarter, the company issued 12.65 million shares for net proceeds of $1.7 billion, which will meet a significant portion of its planned $2 billion requirement via equity issue in the 2023-2027 period.

Guidance

American Water Works reiterated 2023 earnings guidance at $4.72-$4.82 per share. The Zacks Consensus Estimate for 2023 earnings of $4.77 per share is on par with $4.77, the mid-point of the company’s guided range. AWK reiterated long-term earnings and dividend growth in the range of 7-9%.

The company plans to invest nearly $2.9 billion across its footprint in 2023, including $0.4 billion on strategic acquisitions.

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How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, American Water Works has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, American Water Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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