American Water Works Profits: What To Watch Out For November 2

American Water Works (NYSE: AWK) is expected to release its third quarter 2021 results after market close on Tuesday, November 2. A conference call with analysts is scheduled for the next day at 9 a.m. EDT.

In 2021, shares of American Water, which is America’s largest water and wastewater utility, returned 15.8% through Friday, October 22. This performance is lower than that of the S&P 500, which has returned 22.4% so far this year. However, the title remains a market beater in the medium to long term. (A 10-year stock chart follows below.)

Here’s what to look out for in the company’s upcoming Q3 report.

Image source: Getty Images.

Key figures

Here are American Water’s results for the period last year and Wall Street estimates to use as a benchmark.

Metric

Q3 2020 result

Wall Street Consensus Q3 2021 Estimate

Wall Street’s Projected Change

Returned

$ 1.11 billion

$ 1.21 billion

9%

Earnings per share (EPS)

$ 1.46

$ 1.53

4.8%

Data sources: American Water Works and Yahoo! Finance.

Investors shouldn’t be concerned that analysts expect EPS growth to be below normal for the company. American Water has a relatively difficult year-over-year comparable profit. In the third quarter of 2020, EPS jumped 9.8%. This quarter’s $ 1.46 EPS included an increase of $ 0.06 per share due to warmer, drier weather than a year ago and a $ 0.03 per share benefit from ” impacts on the Homeowner Services group resulting from the COVID-19 pandemic, ”the company said.

For context, in the second quarter, the company’s revenue grew 7.3% year-over-year to $ 999 million, and EPS jumped 18% to 1.14. $.

In the second quarter, “the company’s EPS benefited from warmer, drier-than-average weather in its service territory, particularly the Northeast,” as I wrote at the time. While American Water has regulated utility operations in 16 U.S. states, New Jersey and neighboring Pennsylvania are its largest regulated states in terms of revenue, so their weather conditions have a disproportionate effect on the weather. global figure for the company’s climate impact.

In the first quarter, American Water’s revenue increased 5.2% year-on-year to $ 888 million, and EPS increased 7.4% to $ 0.73.

Regulated business efficiency

Investors should continue to monitor American Water’s adjusted operating and maintenance (O&M) efficiency ratio. This ratio, which applies to the past year, reflects the company’s degree of cost control in its regulated activities. The lower the number, the better.

In the second quarter, this ratio was 33.9%, an improvement from 34.3% the previous year.

AWK Total Return Price Table

Data by YCharts.

Advice

For the full year 2021, management expects EPS of between $ 4.18 and $ 4.28, which represents an annual growth of 6.9% to 9.5% of year after year.

Management also continues to project long-term EPS growth averaging between 7% and 10% per year, anchored to weather-normalized 2020 EPS. Additionally, the company is targeting average annual dividend increases at the high end of its EPS growth range.

A solid long-term investment

American Water shares should be a solid long-term position. Although the stock’s dividend yield is modest – it is currently around 1.4% – investors should be able to count on the company’s dividend increasing every year, as it has done since its IPO. in 2008.

American Water provides an essential product that has no substitutes, its industry-leading size gives it an acquisition advantage and its bottom line is expected to benefit from climate change in the long term. Indeed, this is one of the top three climate change related stocks to consider buying right now, in my opinion.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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