tim winter, cFa
gabelli & company
American States Water (AWR) of San
Dimas, Calif., is the parent company
for Golden States Water Company and
American States Utility Services. AWR
is a high-quality utility with a strong balance sheet (58% common equity) and
high credit ratings (S&P: A+). In 2014,
AWR expects to invest $80 million-$90
million on capital expenditures and has
authorized a stock repurchase plan of
up to 1. 25 million shares through June
Shares offer a 2.8% current return on
the $0.85 per share annual dividend,
which represents a 57% payout ratio of
our 2014 earnings estimate [and] allows
for ample cushion for further dividend
growth. We recommend investors hold
AWR shares given our belief that the water utilities strong fundamentals are fairly
recognized in share price. AWR shares
trade at 20. 6 times and 18. 7 times our
2014 and 2015 earnings estimates
compared to peer group multiples of
19. 5 times and 17. 6 times, respectively.
Our 2014, 2015 and 2016 earn-
ings estimates for Aqua America (WTR)
remain $1.20, $1.30, and $1.40 per
share, respectively. Earnings growth will
continue to be driven by rate increases,
acquisitions and cost controls, as well
as ongoing repair tax deduction.
management expects customer growth
of 1. 5-2.0% annually, rate increases in
non-Pennsylvania states, infrastructure
surcharges and improved results from
the marcellus water wholesale business
in 2014 and beyond.
Six (Penn., Ill., Ind., Ohio, N.J., and
N.C.) of the eight-state jurisdiction where
WTR operates allow infrastructure surcharges, which results in timely returns
on investment. year-to-date 2014, WTR
has made seven acquisitions, including
the privately held Presidential Service
Company ( 1,500 people), the municipal
wastewater system of Penn Township,
Penn., ( 2,300 people and 25 commercial customers) and Summit lake, N.J.
ryan m. connors
Janney capital markets
American States Water’s Utilities Services outlook improved for the second half
of 2014. management expects construction activity in the ASUS segment to pick
up in the second half, setting the stage
for a sequential re-acceleration in sales
for the military-base business, although
the precise timing remains uncertain.
In addition, the company expects to
complete multiple price redeterminations
in the military business in the near term,
potentially resulting in retroactive topline
contributions for 2014.
spencer e. Joyce, cFa
Aqua America reported q2’ 14 EPS
from continuing operations of $0.31 vs.
$0.30 in q2’ 13. Our estimate called
for $0.32; consensus was $0.30. A
revenue shortfall (likely weather) and
marcellus pipeline losses weighed
relative to our forecast, while higher tax
credit-eligible spend served as an offset.
Revenue in q1 grew 0.7%, falling
short of our 2.7% expectation, though
we were the high estimate on the Street.
Topline growth is less important as WTR
books repair tax deduction credits, but
we nonetheless expect most quarters will
be positive year over year.
We are reiterating our long-term buy
rating on WTR and two-year price target
A few hours prior to releasing q2 results, WTR announced an 8.6% dividend
hike. based on [a recent] close and the
new payout amount, Aqua shares are
indicated to yield 2.83%.
ed mccarthy, cFp
Solid fundamentals and positive outlooks keep water companies sparkling.