AWK 030112
American Water Works Co., Inc (AWK)
Back on January 17th, I highlighted AWK as a momentum stock due for its global fundamental growth story, earnings growth and defensive stock properties. The water company also throws off a 2.75% dividend yield as well, but that’s just icing on the cake
Since that time the stock has risen over 6.5%, which is substantial considering that this stock have an average monthly trading range (ATR) of just $2.00. There have been quite a few developments over the past month that have not only helped propel this slow moving stock in the short term, but also may have positive effects on the stock over the next year.
Earnings Report and Recent Developments
American Water Works is the largest publicly traded U.S. water and wastewater utility company. Founded in 1886 with headquarters in Voorhees, N.J., the company employs approximately 7,000 people who provide drinking water, wastewater and other related services to an estimated 15 million people in more than 30 states and parts of Canada.
On February 29th, AWK was awarded a contract from CBC Latrobe, LLC (City Brewery). Their Contract Services Group will manage start-up and operations for the wastewater pre-treatment plant at City Brewery in Latrobe, Pennsylvania. The plant will pre-treat up to 590,000 gallons a day of wastewater from the brewery operations before being discharged to the local municipal wastewater plant. That plant in Latrobe produces 20 million cases annually of beer, teas, and energy drinks.
A day prior they completed 13,300 feet of water main upgrades in California. AWK (and this pipeline) provides reliable water and/or wastewater services to approximately 600,000 people.
On that same day, they released Q42011 earnings, missing on revenues but beat expectations on earnings per share and guiding higher for 2012. They saw a significant increase in GAAP earnings per share and margins grew across the board.
Revenue details
The big water company reported revenue of $639.8 million versus expectations of about $720 million on the same basis. GAAP reported sales were 3.7% lower than the prior-year quarter’s $664.5 million.
EPS came in at $0.36; the Zacks Consensus Estimate was for $0.32 per share. GAAP EPS of $0.36 for Q4 were 57% higher than the prior-year quarter’s $0.23 per share. All in all it was a strong report and sent shares marching higher.
Moving Forward
American Water Works remains a key element in the growth of this country. The fundamentals remain intact and the stock remains a #2 Zacks Rank Buy.
A recent study showed that our water infrastructure is in dire need of repair. Just plugging the leaks in water pipes and building new ones to keep up with a growing population could cost the United States $1 trillion over the next 25 years and AWK will play a large role in those repairs and upgrades.
Water infrastructure repair and replacement will most likely fall on the shoulders of local municipalities, which are strained at the moment. But with improvement in tax revenues, better budgeting and maybe a little bit of federal aid (for green technologies) AWK should see continued success over the years.
Zacks recommendation is for AWK to outperform relative to the market with a current price target of $37.80.
This Week’s Momentum Zacks Rank Buy Stocks:
Alliance Data Systems (ADS)
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Due to the strengthening consumer, the average corporation is seeing a small boost in revenues and maybe companies are likely to spend a bit to increase their sales and retention of customers. In turn, consumers may be a little more willing to spend some of that “just in case” money on goods and services.
After the financial crises of 2008-09, credit all but dried up and corporate profits plummeted. As the world continues along its slow recovery, companies like Alliance Data are providing credit, marketing and retention solutions that keep the customer engaged and spending.
With the increase we are seeing in consumer credit and confidence, it could be a sign that things are set to improve at ADS as well. READ FULL STORY
Parametric Technology Corporation (PMTC)
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They are a technology solution that provides an engine, roadmap and more for companies in many industries looking to bring new products to market cheaply and efficiently or improve profitability and design.
As populations grow, economies improve and we evolve as a culture it becomes more important for new and existing products that improve and economize our lives to make it to multiple markets quickly and easily. PMTC provides solutions and technologies to help make that happen. READ FULL STORY
PerkinElmer, Inc. (PKI)
PerkinElmer Inc. isn’t a company name that rolls off the tongue of the average American. But their products, services and technologies have been well known in the scientific community for 70 years and most likely have crossed your path at some point, you may have just not known it…
Perhaps their diverse business, which is focused on the periphery of health and human sciences or the lack of just one strong public brand, keeps them hidden from the average investor. This quiet but strong stock might be worth a look as preventive care, environmental health consciousness and overall safety awareness increases globally. READ FULL STORY
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.
