Why Is American Water Works (AWK) Down 6.2% Since Last Earnings Report?

A month has gone by since the last earnings report for American Water Works (AWK). Shares have lost about 6.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Water Works due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

American Water Q4 Earnings Match, Sales Beat Estimates

American Water Works Company posted fourth-quarter 2019 earnings of 73 cents per share, on par with the Zacks Consensus Estimate. The bottom line improved 5.8% year over year on the back of strong contributions from Regulated and Market-based businesses.

GAAP earnings came in at 54 cents compared with 62 cents in the year-ago quarter. The primary reason for the difference in GAAP and operating earnings in the reported quarter was a one-time loss on the sale of Keystone operations.

Total Revenues

Total revenues of $902 million beat the Zacks Consensus Estimate of $898 million by 0.5% and improved 6.1% from the year-ago figure of $850 million.

Highlights of the Release

Total operating expenses in the quarter were $678 million, up 12.6% from the year-ago period. The decline was due to higher operation and maintenance expenses.

Operating income was $224 million, 9.7% lower than the year-ago figure.

Interest expenses in the reported quarter totaled $98 million compared with $91 million in the prior-year period.

Segment Details

Regulated businesses’ net income was $152 million compared with $118 million in the year-ago quarter. In 2019, this segment added 53,100 customers through acquisitions. Notably, acquisitions, organic growth and additional authorized revenues to support infrastructure investments boosted income.

The company expects to add an additional 44,200 customer connections through pending acquisitions.

Market-Based businesses’ net income was $17 million compared with $14 million in the year-ago quarter. This is attributable to organic growth at its Homeowner Services Group.

Financial Highlights

Cash and cash equivalents amounted to $60 million as of Dec 31, 2019, down from $130 million on Dec 31, 2018.

Long-term debt was $8,639 million as of Dec 31, 2019, higher than $7,576 million at 2018-end.

Cash flow from operating activities in 2019 was $1,383 million compared with $1,386 million in 2018.

Guidance

American Water reaffirmed its guidance for 2020 earnings in the range $3.79-$3.89 and long-term EPS compound annual growth rate within 7-10%, anchored off of 2018 adjusted EPS.

The company has plans to invest $20-$22 billion capital over the next 10 years.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, American Water Works has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, American Water Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.