American Water Works (AWK 1.00%) is slated to release its first-quarter 2021 results after the market close on Monday, May 3. A conference call with analysts is scheduled for the following day at 9 a.m. EDT.
In 2021, shares of the largest publicly traded U.S. water and wastewater utility have returned 5.5% through April 20. The S&P 500 has returned 10.6% over this period. For full-year periods longer than one year, however, the stock remains an outperformer.
Here's what to watch in American Water's upcoming Q1 report.
Image source: Getty Images.
Key numbers
Here are American Water's results for the year-ago period and Wall Street's estimates to use as benchmarks.
|
Metric |
Q1 2020 Result |
Wall Street Q1 2021 Consensus Estimate |
Wall Street's Projected Change |
|---|---|---|---|
|
Revenue |
$844 million |
$855.1 million |
1.3% |
|
Adjusted earnings per share (EPS) |
$0.67 |
$0.73 |
9% |
Data sources: American Water Works and Yahoo! Finance.
For context, last quarter, the company's revenue rose 2.3% year over year, and adjusted EPS increased 6.8%.
As I wrote after American Water released its fourth-quarter and full-year 2020 results: "In 2020, the COVID-19 pandemic dampened demand for water from the company's commercial and industrial customers. ... However, residential demand for water has risen during the pandemic because more people are at home." The net effect of the crisis on the company's earnings was negligible -- management estimated it hurt 2020 reported EPS, which was $3.91, by just $0.02.
This same dynamic will probably be at play in 2021. But it should become less pronounced as the year progresses, assuming continued progress on the vaccine rollout and controlling the pandemic.
O&M efficiency ratio
Investors should continue to monitor American Water's adjusted 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 number, the better.
In 2020, this ratio was 34.3%, an improvement from 34.5% in the year-ago period. While this improvement was slight, it's impressive because it occurred during a year in which the pandemic created a headwind to efficiency for many companies, including American Water.
The company aims to achieve an O&M efficiency ratio of 30.4% by 2025.
Biden administration's proposed infrastructure plan
On the earnings call, management will likely comment on the possible impact on American Water if the The American Jobs Plan is enacted. This is a $2 trillion, 10-year plan focused on improving the country's infrastructure that President Joe Biden announced in late March.
Guidance
American Water only provides official annual guidance. However, on the earnings call, it's possible that management will provide some type of general outlook for the second quarter.
For full-year 2021, management has guided for EPS growth of about 6.9% to 9.5% year over year. And it's targeting average annual dividend growth at the high end of the 7%-to-10% range from 2021 to 2025.
Wall Street is currently modeling for 2021 earnings growth of 8.4% year over year.
