American Water Works (AWK 0.16%) is slated to release its second-quarter 2021 results after the market close on Monday, Aug. 2. A conference call with analysts is scheduled for the following day, Tuesday, at 9 a.m. EDT.
In 2021, shares of the largest publicly traded U.S. water and wastewater utility have returned 9.8% through July 23. This performance trails that of the S&P 500, which has returned 18.4% so far this year.
However, American Water stock remains a top performer over longer periods. Its 10-year return of 614% is slightly more than double the broader market's 304% return over this period.
Here's what to watch in American Water's upcoming second-quarter 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 |
Q2 2020 Result |
Wall Street Q2 2021 Consensus Estimate |
Wall Street's Projected Change |
|---|---|---|---|
|
Revenue |
$931 million |
$1.01 billion |
8.5% |
|
Earnings per share |
$0.97 |
$1.09 |
12% |
Data sources: American Water Works and Yahoo! Finance.
American Water's comparable is relatively modest, which is one reason analysts are expecting revenue and earnings to grow at a rate that's a little faster than usual. Along with many companies, its second quarter of last year was the quarter most affected by the pandemic.
In that quarter, American Water's regulated water revenue was hurt because many of its commercial and industrial customers were temporarily closed or only partly operating. Residential water use got a tailwind in that quarter due to the ballooning of the number of people working from their homes, but this increase wasn't enough to fully offset the decline in revenue from non-residential customers.
For context, in the first quarter, the company's revenue rose 5.2% year over year to $888 million, and EPS increased 7.4% to $0.73.
June's hotter-than-usual temperatures could boost revenue
Many regions of the United States recorded higher-than-average temperatures in June, the last month of the second quarter. This fact could boost the utility's water revenue, as the company has regulated businesses in 16 states.
New Jersey's warmer-than-usual temperatures will probably provide the most notable boost to American Water's revenue because the Garden State is the company's largest regulated state in terms of revenue. The state's June was tied for the eight-warmest June since record keeping began in 1895, according to the Rutgers New Jersey Weather Network.
American Water's revenue should get a long-term boost from the warming of the planet. Indeed, in early 2020, I called it one of three top climate change stocks to consider buying -- along with leading wholesaler of swimming pool supplies Pool Corp. and backup power-generator maker Generac Holdings -- and I am still bullish on all three.
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 the first quarter, this ratio was 34.1%, an improvement from 34.5% in the year-ago period.
Guidance
Last quarter, management reaffirmed its earnings guidance for full-year 2021. (The company doesn't provide a revenue outlook.)
For 2021, it expects EPS growth of about 6.9% to 9.5% year over year. Moreover, it projects average annual dividend growth at the high end of the 7%-to-10% range from 2021 to 2025. Of course, it will be a positive if the company increases full-year guidance.
Wall Street is currently modeling for 2021 EPS growth of 8.4% year over year.
