Can American States Water Fire Up Growth?

On Friday, American States Water (AWR -0.64%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

American States Water is a play on the increasing importance of water services and infrastructure, and for 58 years, the company has managed to reward its shareholders with steady annual dividend increases. Let's take an early look at what's been happening with American States Water over the past quarter and what we're likely to see in its quarterly report.

Stats on American States Water

Source: Yahoo! Finance.

Can American States Water keep crushing its earnings?
Despite American States Water's run of earnings beats, analysts have nevertheless gotten more pessimistic about its near-term earnings prospects recently, shaving a nickel per share from their first-quarter estimates. Yet they've boosted longer-term calls for the full 2013 and 2014 years, reflecting the future potential the stock has. Shares have risen about 9% since early February, in line with the overall market.

American States Water is hardly the biggest player in the growing water-services industry, with rivals American Water Works (AWK 0.16%) and Aqua America (WTRG 0.08%) sporting much larger networks of utilities around the country. Yet with its focus on California, American States Water lays claim to some of the thirstiest high-population areas in the nation and has plenty of future growth potential to go with its existing modest network of water infrastructure.

A court decision affecting Aqua America could have positive implications on the ability for American States Water to protect its assets from government action. Aqua America won a case in April over an Indiana town that used eminent domain to take over the company's local water-utility subsidiary, with the court ruling that the company was entitled to a jury trial over determining the fair value of the assets taken.

One potential growth area for companies like American States Water could come from desalination, with a new innovation from Lockheed Martin (LMT 1.23%) potentially requiring less pressure to filter out salt and other unwanted particulates. Given American States Water's location in California, salt water could become a useful source of drinking water, especially if water levels from the Colorado River and other sources dwindle.

In American States Water's quarterly report, be sure to compare its results with those of American Water Works, which reported 17% higher income from continuing operations. With big players making acquisitions to grow, American States Water needs to decide whether it wants to be a buyer of smaller utilities or a target of Aqua America, American Water Works, or another bigger company.

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