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

In 2021, shares of American Water, which is the largest publicly traded U.S. water and wastewater utility, have returned 15.8% through Friday, Oct. 22. This performance lags that of the S&P 500, which has returned 22.4% so far this year. However, the stock remains a market beater over the medium and longer terms. (A 10-year stock chart follows below.)

Here's what to watch in the company's upcoming Q3 report.

Drops of water falling into a deep blue body of water and causing ripples.

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

Q3 2020 Result

Wall Street Q3 2021 Consensus Estimate

Wall Street's Projected Change 

Revenue

$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 are projecting EPS growth to be lower than typical for the company. American Water has a relatively tough year-over-year earnings comparable. In the third quarter of 2020, EPS jumped 9.8%. That quarter's EPS of $1.46 included a $0.06 per-share boost from weather that was warmer and drier than the year-ago period 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 rose 7.3% year over year to $999 million, and EPS jumped 18% to $1.14.

In Q2, the "company's EPS got a $0.03 benefit from warmer and 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 by revenue, so their weather has an outsize effect on the company's overall weather-impact figure. 

In the first quarter, American Water's revenue rose 5.2% year over year to $888 million, and EPS increased 7.4% to $0.73.

Regulated business efficiency

Investors should continue to monitor American Water's adjusted operation and maintenance (O&M) efficiency ratio. This ratio, which is for the trailing year, reflects how well the company is controlling costs in its regulated business. The lower the number, the better.

In the second quarter, this ratio was 33.9%, an improvement from 34.3% in the year-ago period. 

AWK Total Return Price Chart

Data by YCharts.

Guidance

For full-year 2021, management expects EPS between $4.18 and $4.28, representing annual growth of 6.9% to 9.5% year over year.

Management also continues to project long-term EPS growth averaging between 7% and 10% annually, anchored off weather-normalized 2020 EPS. Moreover, the company aims for average annual dividend increases at the high end of its EPS growth range.

A solid long-term investment

American Water stock should make for a solid long-term holding. While the stock's dividend yield is modest -- it's currently about 1.4% -- investors should be able to count on the company increasing its dividend every year, just as it's done since going public in 2008.

American Water provides an essential product that has no substitutes, its industry-leading size gives it an advantage in the acquisition arena, and its results should get a long-term tailwind from climate change. Indeed, it's one of the three best climate change stocks to consider buying now, in my view.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.