California Water's (CWT) Investments, Rate Hikes Bode Well

California Water Service (NYSE:CWT) Group’s CWT strategic acquisitions and investments to upgrade or replace its water infrastructure will help the utility serve its growing customer base efficiently. Also, rate hikes are aiding the company’s performance.

Tailwinds

With its focus on expanding operations in the Western United States, California Water Service continues to explore opportunities for extending its regulated and non-regulated water and wastewater activities. To this end, the utility invested $138.5 million in the first six months of 2021 after spending $298.7 million in 2020. Its capital expense estimate for 2021 is in the $270-$300 million range.

The company is undertaking acquisitions and replacement projects to enhance the reliability of its services and broaden its business scope. Such efforts improved its customer base by 4.3% year over year in 2020. Other water utilities like American Water (NYSE:AWK) Works Co. AWK, Middlesex Water MSEX and Essential Utilities (NYSE:WTRG) WTRG are also investing heavily in bettering system reliability and efficiently serving their growing customer bases.

California Water Service has been benefiting from rate hikes since the beginning of 2014. The rate base is expected to improve from $1.82 billion in 2021 to $2.74 billion in 2025. The ongoing expansion of the rate base will positively impact its earnings over the long term.

The utility also boasts ample liquidity to meet its near-term obligations. As of Jun 30, it had $66.5 million of cash and additional current capacity of $405 million on the lines of credit, subject to meeting its borrowing conditions.

Woes

More than 93.8% of California Water Service’s operations is concentrated within the state itself, exposing it to various hazards. Its aging water infrastructure requires constant investments in maintaining the reliability of services. Moreover, the risk involving contamination of water supplied by the company is a concern.

Zacks Rank & Price Performance

This currently Zacks Rank #2 (Buy) company has gained 37.2%, outperforming the industry’s rise of 16.9% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

One-Year Price Performance

Image Source: Zacks Investment Research

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