American Water Works (AWK +3.01%) is scheduled to release its third-quarter 2019 results after the market closes on Wednesday, Oct. 30.
Shares of the largest publicly traded U.S. water and wastewater utility have returned 36.7% in 2019 through Oct. 18, gushing past the S&P 500's 21.1% return. Water utility stocks in general have been having a strong year, thanks in part to investors' fears of a recession and declining interest rates. Shares of Aqua America and American States Water, the industry's second and third largest companies by market cap, have returned 38.6% and 42.1%, respectively, so far this year.
Here's what to watch in American Water's report.
Image source: Getty Images.
Key numbers
Here are American Water's year-ago results and Wall Street's estimates to use as benchmarks.
|
Metric |
Q3 2018 Result |
Wall Street's Q3 2019 Consensus Estimate |
Wall Street's Projected Growth |
|---|---|---|---|
|
Revenue |
$976 million |
$1.07 billion |
9.6% |
|
Adjusted EPS |
$1.20 |
$1.30 |
8.3% |
Data sources: American Water Works and Yahoo! Finance. EPS = earnings per share.
American Water is barreling toward its earnings release on a solid note. Last quarter, both its revenue and adjusted EPS rose 13% year over year, with its earnings slightly beating the Wall Street consensus estimate.
O&M efficiency ratio
Investors should watch American Water's operation and maintenance (O&M) efficiency ratio. This ratio, which is for the trailing one-year period, reflects how well the company is controlling costs in its regulated business. The lower the ratio, the better.
Last quarter, this ratio ticked up slightly to 35.4%, from 35.3% in the year-ago period. While this metric might be a bit lumpy from quarter to quarter, the overall direction is solidly down. In 2019, this ratio was more than 44%. The company's goal is to achieve 31.5% by 2023.
JEA acquisition bid
On the earnings call, analysts are likely to ask management about the company's recent bid for the water and wastewater systems owned by JEA. The Jacksonville, Florida-owned utility provides electric, water, and wastewater services to portions of the northeast part of the Sunshine State. American Water's bid became public knowledge earlier this month, when a spokesperson confirmed the company was one of the then-undisclosed bidders. On Monday, JEA revealed the names of the companies that have made the initial cut to proceed to the negotiation stage; American Water is one of them.
This would be a huge acquisition for American Water, as JEA's water and wastewater system is among the 10 largest ones in the country. In 2018, JEA's water and wastewater operations took in revenue of $432 million -- nearly 13% American Water's revenue of $3.44 billion. The JEA systems would also be American Water's first regulated operation in Florida.
2019 guidance
Investors can probably expect the company to once again reaffirm its previously issued full-year 2019 earnings guidance. Last quarter, American Water reaffirmed its 2019 adjusted EPS guidance of $3.54 to $3.64. That represents growth of 7.3% to 13.3% year over year.
