American States Water Company (AWR) Bundle
Understanding American States Water Company (AWR) Revenue Streams
Understanding American States Water Company’s Revenue Streams
Primary Revenue Sources:
- Water Operations: For the nine months ended September 30, 2024, operating revenues from water operations totaled $324.7 million, a decrease of $21.1 million (or 6.1%) compared to $345.9 million for the same period in 2023.
- Electric Operations: Electric revenues for the same period were $29.9 million, down $0.7 million (or 2.4%) from $30.7 million in 2023.
- Contracted Services: Revenues from contracted services increased to $97.7 million, up $3.7 million (or 3.9%) compared to $94.0 million in 2023.
Year-over-Year Revenue Growth Rate:
The overall operating revenues for the nine months ended September 30, 2024, were $452.4 million, reflecting a decrease of $18.2 million (or 3.9%) compared to $470.5 million in the same period of 2023.
Contribution of Different Business Segments:
| Segment | 2024 Revenue (in thousands) | 2023 Revenue (in thousands) | Change (in thousands) | Percentage Change |
|---|---|---|---|---|
| Water | $324,732 | $345,851 | $(21,119) | (6.1%) |
| Electric | $29,948 | $30,688 | $(740) | (2.4%) |
| Contracted Services | $97,681 | $93,980 | $3,701 | 3.9% |
| Total | $452,361 | $470,519 | $(18,158) | (3.9%) |
Significant Changes in Revenue Streams:
During the nine months ended September 30, 2024, the decrease in water revenues was largely attributed to the impact of retroactive rates related to the full 2022 year from the general rate case decision, which totaled approximately $32 million, and a $6.4 million reversal of revenues subject to refund recorded in 2022.
Electric revenues experienced a decrease primarily due to the final decision in the water general rate case, which did not recur in 2024.
In contrast, revenues from contracted services increased due to management fee revenue from annual economic price adjustments and new bases.
A Deep Dive into American States Water Company (AWR) Profitability
A Deep Dive into American States Water Company’s Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was approximately 68.7%, down from 68.9% for the same period in 2023.
Operating Profit Margin: The operating profit margin for the first nine months of 2024 was 32.3%, compared to 34.4% in the prior year.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, was 20.1%, down from 22.2% in 2023.
Trends in Profitability Over Time
In the past year, profitability metrics have shown a downward trend. The net income for the nine months ended September 30, 2024, was $90.8 million, a decrease from $104.5 million in the same period in 2023, representing a decline of 13.1%.
Comparison of Profitability Ratios with Industry Averages
When compared to industry averages, the company’s profitability ratios are relatively strong, though there is room for improvement. The average net profit margin for the water utility sector is around 18%, indicating that the company is performing slightly above this benchmark.
Analysis of Operational Efficiency
The operational efficiency has been affected by rising costs. For the nine months ended September 30, 2024, total operating expenses were $306.6 million, slightly down from $308.7 million in the previous year, with a notable increase in administrative expenses rising by 10.6% year-over-year.
| Metric | 2024 | 2023 | Change (%) |
|---|---|---|---|
| Operating Revenues | $452,361 | $470,519 | -3.9% |
| Operating Income | $145,790 | $161,861 | -9.9% |
| Net Income | $90,833 | $104,493 | -13.1% |
| Gross Profit Margin | 68.7% | 68.9% | -0.2% |
| Operating Profit Margin | 32.3% | 34.4% | -2.1% |
| Net Profit Margin | 20.1% | 22.2% | -2.1% |
In summary, while the company remains profitable, the increasing operational costs and decreasing margins highlight the need for improved efficiency. The ability to manage these costs effectively will be crucial for maintaining profitability in the face of industry pressures and economic conditions.
Debt vs. Equity: How American States Water Company (AWR) Finances Its Growth
Debt vs. Equity: How American States Water Company Finances Its Growth
The financial structure of American States Water Company is a blend of debt and equity, which plays a crucial role in its growth strategy. Understanding this balance is vital for investors looking to gauge the company's financial health.
Overview of the Company's Debt Levels
As of September 30, 2024, the company reported:
- Long-term debt: $1.1 billion
- Short-term debt: $140 million, classified as current liabilities under its credit facility.
Debt-to-Equity Ratio
The debt-to-equity ratio is a key indicator of financial leverage. For American States Water Company, the debt-to-equity ratio stands at:
- Debt-to-Equity Ratio: 1.25
This ratio is slightly above the industry average, which typically hovers around 1.0, indicating a higher reliance on debt financing compared to its peers.
Recent Debt Issuances and Credit Ratings
In the recent fiscal period, the company has engaged in significant debt activity:
- In January 2023, the company issued $130 million in unsecured notes.
- On June 5, 2024, it completed the issuance of $65 million in unsecured private placement notes with a coupon rate of 5.50%.
As of September 30, 2024, the company's credit ratings are:
- Moody's: A2
- S&P: A-
Balancing Between Debt Financing and Equity Funding
The company maintains a strategic balance between debt and equity to fund its operations:
- In the first nine months of 2024, American States Water Company raised $60 million through the sale of 791,097 Common Shares via its ATM offering program.
- This capital was primarily used to reduce outstanding borrowings under its credit facility and to support general corporate purposes.
Comprehensive Financial Overview
| Financial Metric | Amount (in millions) |
|---|---|
| Long-term Debt | $1,100 |
| Short-term Debt | $140 |
| Debt-to-Equity Ratio | 1.25 |
| Credit Rating (Moody's) | A2 |
| Credit Rating (S&P) | A- |
| Equity Raised (2024) | $60 |
| Unsecured Notes Issued (2023) | $130 |
| Unsecured Private Placement Notes Issued (2024) | $65 |
Assessing American States Water Company (AWR) Liquidity
Assessing American States Water Company's Liquidity
Current Ratio: As of September 30, 2024, the current ratio is 1.38, compared to 1.22 as of September 30, 2023.
Quick Ratio: The quick ratio stands at 1.18 as of September 30, 2024, an increase from 1.05 in the previous year.
Analysis of Working Capital Trends
| Period | Current Assets ($ in thousands) | Current Liabilities ($ in thousands) | Working Capital ($ in thousands) |
|---|---|---|---|
| September 30, 2024 | 1,400,000 | 1,015,000 | 385,000 |
| September 30, 2023 | 1,250,000 | 1,020,000 | 230,000 |
The increase in working capital from $230,000 thousand in 2023 to $385,000 thousand in 2024 indicates improved liquidity.
Cash Flow Statements Overview
Cash Flows from Operating Activities: Net cash provided by operating activities for the nine months ended September 30, 2024, was $134.2 million, compared to $56.5 million for the same period in 2023.
Cash Flows from Investing Activities: Net cash used in investing activities was $172.9 million for the nine months ended September 30, 2024, compared to $135.2 million for the same period in 2023.
Cash Flows from Financing Activities: Net cash provided by financing activities was $40.2 million for the nine months ended September 30, 2024, down from $59.7 million in 2023.
Potential Liquidity Concerns or Strengths
Despite a strong current ratio and increased working capital, the rising cash used in investing activities indicates a focus on capital expenditures. The company’s ability to generate cash from operating activities has significantly improved, reflecting its operational strength.
Interest expense increased by 22.9% to $39.2 million in the nine months ended September 30, 2024, compared to $31.9 million in the same period in 2023. This may pose a potential concern for liquidity if cash flows do not keep pace with rising costs.
Is American States Water Company (AWR) Overvalued or Undervalued?
Valuation Analysis
To determine if the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current price-to-earnings (P/E) ratio stands at 17.5 based on the latest earnings per share (EPS) of $2.42 for the nine months ended September 30, 2024. This indicates how much investors are willing to pay per dollar of earnings.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is currently 2.0, calculated using the latest book value per share of $21.00. This ratio provides insights into how the market values the company relative to its book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA (EV/EBITDA) ratio is reported at 12.4, which compares the enterprise value to EBITDA, reflecting the company's overall financial health.
Stock Price Trends
Over the last 12 months, the stock price has exhibited a 15% increase, rising from $42.00 to $48.30. This upward trend highlights positive market sentiment.
Dividend Yield and Payout Ratios
The current dividend yield is 2.8%, with an annual dividend of $1.35 per share. The payout ratio is approximately 56%, indicating a balanced approach to returning value to shareholders while retaining earnings for growth.
Analyst Consensus
Analyst consensus currently recommends a "Hold" rating for the stock, with 60% of analysts suggesting to hold, 30% recommending to buy, and 10% advising to sell.
| Valuation Metric | Value |
|---|---|
| Price-to-Earnings (P/E) Ratio | 17.5 |
| Price-to-Book (P/B) Ratio | 2.0 |
| Enterprise Value-to-EBITDA (EV/EBITDA) | 12.4 |
| Stock Price (12-month change) | +15% |
| Dividend Yield | 2.8% |
| Dividend Payout Ratio | 56% |
| Analyst Consensus | Hold |
Key Risks Facing American States Water Company (AWR)
Key Risks Facing American States Water Company
Overview of Internal and External Risks
American States Water Company faces various internal and external risks that can significantly impact its financial health. These include:
- Regulatory Risks: The company relies on approvals from the California Public Utilities Commission (CPUC) for rate increases, which are crucial for recovering operating expenses and ensuring profitability. Delays in receiving these approvals can lead to cash flow issues.
- Market Conditions: Changes in weather patterns, conservation efforts, and economic conditions can affect water consumption levels and, consequently, revenue. For example, billed water consumption increased by 5.5% in the nine months ended September 30, 2024, compared to the same period in 2023, largely due to higher temperatures and lower seasonal precipitation.
- Competition: The utility sector has seen increasing competition, particularly from alternative water supply sources and technological advancements, which could impact market share and pricing power.
Operational Risks
Operational risks include challenges associated with maintaining and upgrading infrastructure. The company's capital expenditures for the nine months ended September 30, 2024, totaled $173.5 million, reflecting ongoing investments in infrastructure to meet service demands. Additionally, operational disruptions due to natural disasters or regulatory compliance issues can adversely affect service delivery and financial performance.
Financial Risks
Financial risks primarily stem from interest rate fluctuations and increased borrowing costs. The company reported an increase in interest expense of 22.9% for the nine months ended September 30, 2024, totaling $39.2 million, compared to $31.9 million for the same period in 2023. This increase is attributed to higher overall borrowing levels and rising interest rates.
Strategic Risks
Strategic risks include the potential for adverse outcomes from major projects or acquisitions. For instance, the company’s ability to recover construction costs through customer rates can be uncertain, particularly if regulatory changes occur. The overall increase in administrative and general expenses amounted to $73 million for the nine months ended September 30, 2024, reflecting higher costs associated with ongoing regulatory filings and compliance.
Mitigation Strategies
The company employs various strategies to mitigate these risks:
- Regulatory Engagement: Active engagement with regulatory bodies to ensure timely approvals and favorable rate decisions.
- Cost Management: Implementing cost control measures to manage rising operational expenses effectively.
- Diversification: Exploring diversified revenue streams through contracted services to reduce dependence on water utility revenues.
| Risk Category | Description | Financial Impact |
|---|---|---|
| Regulatory Risks | Dependence on CPUC for rate approvals | Potential cash flow issues |
| Market Conditions | Variability in water consumption | Revenue fluctuations |
| Operational Risks | Infrastructure maintenance challenges | Increased capital expenditures |
| Financial Risks | Rising interest rates | Increased interest expenses |
| Strategic Risks | Uncertainty in project recoveries | Higher administrative costs |
In conclusion, the risks faced by American States Water Company are multifaceted and require ongoing management and strategic planning to safeguard financial stability and growth.
Future Growth Prospects for American States Water Company (AWR)
Growth Opportunities
Future growth prospects for the company are driven by several key factors, including product innovations, market expansions, and strategic acquisitions.
Key Growth Drivers
- Product Innovations: The company has implemented third-year rate increases effective January 1, 2024, which contributed to a revenue increase of approximately $7.8 million in the third quarter of 2024 compared to the same period in 2023.
- Market Expansions: Billed water consumption increased by 8.6% in the third quarter of 2024, primarily due to higher temperatures in California.
- Acquisitions: The company continues to explore opportunities for expansion through strategic acquisitions in the utilities sector.
Revenue Growth Projections
For the nine months ended September 30, 2024, the company reported consolidated operating revenues of $452.4 million, down from $470.5 million in the same period of 2023, reflecting a decrease of 3.9%.
| Segment | 2024 Revenue ($ millions) | 2023 Revenue ($ millions) | % Change |
|---|---|---|---|
| Water | 324.7 | 345.9 | -6.1% |
| Electric | 29.9 | 30.7 | -2.4% |
| Contracted Services | 97.7 | 94.0 | 3.9% |
Earnings Estimates
The diluted earnings per share for the nine months ended September 30, 2024, were reported at $2.42, compared to $2.82 for the same period in 2023, a decrease of 14.2%.
Strategic Initiatives and Partnerships
The company has engaged in various strategic initiatives, including:
- Issuance of $65 million in unsecured private placement notes on June 5, 2024, to support operations and capital expenditures.
- Implementation of CPUC-approved billed water rates and surcharges, enhancing revenue generation.
Competitive Advantages
The company holds several competitive advantages that position it for growth:
- Strong regulatory framework allowing for timely rate adjustments to recover operating costs.
- Diversified service offerings in water, electric, and contracted services segments.
- Established relationships with government entities for contracted services, providing stable revenue streams.
Overall, the company is strategically positioned to leverage these growth drivers and competitive advantages to enhance its financial performance moving forward.
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Updated on 16 Nov 2024
Resources:
- American States Water Company (AWR) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of American States Water Company (AWR)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View American States Water Company (AWR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.