California Water Service Group : Baird Raises Target Price To $61 From $55

Water might cover most of our planet, but only 3% of it is freshwater, and climate change is making this precious resource even scarcer. With global warming and rising demand, finding effective water solutions is becoming more critical than ever.

In this landscape, it could be wise to keep an eye on water utility stocks such as Global Water Resources, Inc. , California Water Service Group , and Consolidated Water Co. Ltd. , which are consistent dividend payers. These companies are well-positioned to benefit from the increasing focus on water conservation.

Water is more than just a basic necessity; it fuels countless industries, from agriculture and food production to tech and energy. As the world grapples with climate change and water scarcity, the business of sourcing, purifying, and distributing water is becoming increasingly vital.

With the demand for freshwater expected to outstrip supply by 40% by 2030 and the likelihood of more frequent droughts and extreme weather events, the water sector is poised for significant growth. Some experts even suggest that large-scale desalination might be necessary to meet global needs.

This growing need is driving investment in water-related companies, making them attractive options for those looking to capitalize on long-term trends. The U.S. water and wastewater treatment market is projected to hit $206.64 billion by 2032, exhibiting a CAGR of 6.9%.

In addition, the U.S. capital Department of Agriculture (USDA) recently announced a record $2.3 billion in investments under the Western Water framework to support irrigation districts, address drought, and conserve water through innovative water-saving technologies and the production of water-saving commodities.

Considering these factors, let’s look at the fundamentals of the above-mentioned Water stocks, beginning with the third choice.

Stock #3: Consolidated Water Co. Ltd. (CWCO)

Headquartered in Grand Cayman, CWCO designs, constructs, manages, and operates water production, water distribution systems, and water treatment plants, primarily in the Cayman Islands, the Bahamas, and the United States. It operates through four segments: Retail; Bulk; Services; and Manufacturing.

Buoyed by strong financial performance, the company paid its shareholders a dividend of $0.095 per share on July 31 for the third quarter of 2024.

CWCO pays an annual dividend of $0.38, which translates to a yield of 1.34% at the current share price. Its four-year average dividend yield is 2.27%. Moreover, the company’s dividend payouts have increased at CAGRs of 3.8% and 2.3% over the past three and five years, respectively.

In the fiscal first quarter that ended on June 30, 2024, CWCO’s total revenue increased 20.7% year-over-year to $39.69 million. The company reported a gross profit of $13.88 million, indicating a 31.4% growth from the prior year quarter. In addition, its attributable net income came in at $6.47 million, up 66.7% year-over-year, while earnings per share grew 66.7% from the year-ago value to $0.40.

Analysts expect CWCO’s revenue and EPS for the current year to decrease 19.9% and 32.8% year-over-year to $144.35 million and $1.25, respectively. However, for the fiscal year ending December 2025, its revenue is expected to grow 14.4% from the prior year to $165.20 million, while its EPS for the same period is forecasted to increase 16.8% year over year to $1.46.

CWCO shares have surged 45.6% over the past year to close the last trading session at $28.41.

CWCO’s stance is apparent in its POWR Ratings. The stock has a grade B for Momentum and Quality. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Among the 12 stocks in the Water industry, it is ranked #3. Click here to see the additional CWCO ratings (Growth, Value, Stability, and Sentiment).

Stock #2: California Water Service Group (CWT)

CWT provides water utility and related services across California, Washington, New Mexico, Hawaii, and Texas. The company handles the production, purchase, storage, treatment, testing, distribution, and sale of water for domestic, industrial, public, and irrigation purposes, as well as fire protection services.

On July 31, demonstrating its commitment to returning value to shareholders, the company declared the 318th consecutive quarterly dividend of $0.28 per common share. This dividend will be paid on August 23, 2024, to shareholders on record as of August 12, 2024.

With 56 years of consecutive dividend growth, CWT pays an annual dividend of $1.12, which translates to a yield of 2.08% at the current share price. Its four-year average dividend yield is 1.77%. Moreover, its dividend payouts have increased at a CAGR of 6.9% over the past three years.

On July 9, CWT’s largest subsidiary, California Water Service, announced its plans to invest more than $1.6 billion in its districts from 2025-2027, including approximately $1.3 billion of newly proposed capital investments to ensure a reliable supply of high-quality water.

The application to the CPUC also proposes a Low-Use Water Equity Program to decouple revenue from water sales, helping low-water-using, lower-income customers. Additionally, the plan includes replacing aging water pipelines.

On May 28, California Water Service acquired the water system assets of Kings Mountain Park Mutual Water Company. Cal Water's Bear Gulch District, which has been supplying water to Kings Mountain, will now directly serve its customers. This acquisition will allow Cal Water to invest in and maintain Kings Mountain's infrastructure, ensuring safe and reliable water service for daily and emergency needs.

CWT’s operating revenue for the second quarter ended June 30, 2024, increased 25.9% year-over-year to $244.30 million. Its net operating income improved by 202% from the year-ago value to $48.17 million. The company’s net income attributable to CWT grew 324.4% from the prior-year quarter to $40.55 million, while its earnings per share stood at $0.70, up 311.8% year-over-year.

Street expects CWT’s EPS for the third quarter (ending September 2024) to increase 80% year-over-year to $1.08. Its revenue for the ongoing quarter is expected to grow by 20.3% from the prior year to $306.80 million.

Over the past six months, the stock has gained 17.3%, closing the last trading session at $53.88.

CWT’s mixed fundamentals are reflected in its POWR Ratings. It has a B grade for Growth and Sentiment. It is ranked #2 out of 12 stocks within the same industry.

Beyond what is stated above, we’ve also rated CWT for Value, Momentum, Stability, and Quality. Get all CWT ratings here.

Stock #1: Global Water Resources, Inc. (GWRS)

GWRS is a water resource management company that owns, operates, and manages regulated water, wastewater, and recycled water systems, primarily in metropolitan Phoenix and Tucson, Arizona. It aims to implement an integrated strategy called Total Water Management. It serves more than 82,000 people in over 32,000 homes within its 408 square miles of certificated service areas.

On July 31, the company declared a monthly cash dividend of $0.025 per common share, payable on August 30, 2024, to shareholders of record on August 6, 2024. GWRS pays an annual dividend of $0.30, which translates to a yield of 2.35% at the current share price. Its four-year average dividend yield is 2.17%.

On May 7, GWRS agreed to acquire seven water systems from the City of Tucson’s water utility, serving around 2,200 customers in Pima County. These systems will be integrated with existing Global Water utilities in the area, increasing their total customers in Pima County to approximately 7,200. The deal, anticipated to be completed early next year, aligns well with GWRS’ growth and development strategy for Pima County.

For the fiscal first quarter that ended March 31, 2024, GWRS’ total revenues amounted to $11.61 million, while its adjusted EBITDA increased 4.5% year-over-year to $5.40 million. Its adjusted net income for the quarter amounted to $691 thousand, while its adjusted EPS remained flat at $0.03 year-over-year. In addition, the company’s net cash flow from operating activities grew 24.4% from the year-ago value to $8.07 million.

The consensus revenue estimate of $13.60 million for the fiscal second quarter (ended June 2024) represents a 4.6% increase year-over-year. The consensus EPS estimate of $0.08 for the about-to-be-reported quarter indicates a 14.3% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.

Shares of GWRS have gained 22.2% over the past nine months to close the last trading session at $12.83.

GWRS’ POWR Ratings reflect this outlook. It has an A grade for Sentiment and a B for Stability and Quality. Out of 12 stocks in the same industry, GWRS is ranked first. To see the other ratings of GWRS for Growth, Value, and Momentum, click here.

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CWT shares were trading at $54.30 per share on Friday morning, up $0.42 (+0.78%). Year-to-date, CWT has gained 5.90%, versus a 12.54% rise in the benchmark S&P 500 index during the same period.

California Water Service Group CWT recorded second-quarter 2024 adjusted earnings of 70 cents per share, which surpassed the Zacks Consensus Estimate of 39 cents by 79.5%. The bottom line also increased from the year-ago quarter’s figure of 17 cents.

Total Revenues

Operating revenues totaled $244.3 million, which surpassed the Zacks Consensus Estimate of $200 million by 22%. The top line also increased 25.9% from $194 million recorded in the prior-year quarter. The quarterly results continued to benefit from the effects of the 2021 California General Rate Case decision received on Mar 7, 2024.

California Water Service Group Price, Consensus and EPS Surprise

California Water Service Group price-consensus-eps-surprise-chart | California Water Service Group Quote

Operational Update

Total operating expenses were $196.1 million, up 10.1% from the year-ago quarter’s level of $178.1 million. Water production costs increased $6.8 million, primarily due to an increase in wholesale rates and water usage.

CWT reported maintenance expenses of $8.8 million, up 22.8% year over year.

Net operating income was $48.2 million compared with the year-ago quarter’s reported figure of $15.9 million.

Net interest expenses were $14 million, up 10.2% from the prior-year quarter’s figure of $12.7 million. The year-over-year rise was primarily due to an increase in short-term borrowing rates and higher credit balances.

Financial Update

As of Jun 30, 2024, CWT had cash and cash equivalents of $37.3 million compared with $39.6 million as of Dec 31, 2023.

As of Jun 30, 2024, its net long-term debt totaled $1.052 billion compared with $1.053 billion as of Dec 31, 2023.

Zacks Rank

Currently, CWT carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Essential Utilities Inc. WTRG is scheduled to report second-quarter results on Aug 5, after market close. The Zacks Consensus Estimate for earnings is pegged at 30 cents per share.

WTRG’s long-term (three to five years) earnings growth rate is 5.75%. It delivered an average earnings surprise of 0.4% in the past four quarters.

American States Water AWR is scheduled to report second-quarter results on Aug 6, after market close. The Zacks Consensus Estimate for earnings is pegged at 84 cents per share.

AWR’s long-term earnings growth rate is 6.3%. It delivered an average earnings surprise of 4.4% in the past four quarters.

Global Water Resources GWRS is scheduled to report second-quarter results on Aug 8, after market close. The Zacks Consensus Estimate for earnings is pegged at 8 cents per share.

GWRS’ long-term earnings growth rate is 15%. It delivered an average earnings surprise of 16.3% in the past four quarters.

Zacks Investment Research

California Water Servs Gr just reported results for the second quarter of 2024.

• California Water Servs Gr reported earnings per share of 70 cents. This was above the analyst estimate for EPS of 42 cents.
• The company reported revenue of $244.30 million.
• This was 12.97% better than the analyst estimate for revenue of $216.25 million.

InvestorPlace Earnings is a project that leverages data from TradeSmith to automate coverage of quarterly earnings reports. InvestorPlace Earnings distills key takeaways including earnings per share and revenue, as well as how a company stacks up to analyst estimates. These articles are published without human intervention, allowing us to inform our readers of the latest figures as quickly as possible. To report any concerns or inaccuracies, please contact us at editor@investorplace.com.

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California Water Service Group came out with quarterly earnings of $0.70 per share, beating the Zacks Consensus Estimate of $0.39 per share. This compares to earnings of $0.17 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 79.49%. A quarter ago, it was expected that this water utility would post earnings of $0.21 per share when it actually produced earnings of $1.21, delivering a surprise of 476.19%.

Over the last four quarters, the company has surpassed consensus EPS estimates three times.

California Water Service Group, which belongs to the Zacks Utility - Water Supply industry, posted revenues of $244.3 million for the quarter ended June 2024, surpassing the Zacks Consensus Estimate by 21.97%. This compares to year-ago revenues of $194.04 million. The company has topped consensus revenue estimates three times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

California Water Service Group shares have added about 3.1% since the beginning of the year versus the S&P 500's gain of 15.8%.

What's Next for California Water Service Group?

While California Water Service Group has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for California Water Service Group: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $1.09 on $261.63 million in revenues for the coming quarter and $3.15 on $951.51 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Utility - Water Supply is currently in the top 40% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Primo , another stock in the same industry, has yet to report results for the quarter ended June 2024. The results are expected to be released on August 8.

This maker of pure-play water solutions is expected to post quarterly earnings of $0.25 per share in its upcoming report, which represents a year-over-year change of +4.2%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

Primo's revenues are expected to be $478.52 million, down 19.4% from the year-ago quarter.

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