James O. Lykins
J.J.B. Hilliard, W.L. Lyons, LLC
What Your Peers Are Reading
American Water Works (AWK) management announced FY’12 EPS guidance of $1.90-$2.00, compared to our forecast of $1.99 per share.
We also remind investors that Hurricane Irene and Tropical Storm Lee this past year drove the wettest summer on record in New Jersey, while August was the wettest month on record in the Philadelphia area.
This not only translates to easier comparisons, but any positive weather-driving higher usage could easily propel EPS beyond the high end of FY’12 guidance.
New rates totaling $158.3 million in eight states were put in effect in 2011, and AWK also has rate cases pending in eight states. The stock is trading at 18.1 times and 16.3 times our FY’11 and FY’12 EPS estimates, respectively, a significant discount to the company’s peer group trading at 21.8 times and 18.5 times 2011 and 2012 earnings estimates.
We derive our $35 price target using a multiple of 18 times our FY’12 EPS estimate, which in our view is justified given the company’s growth prospects and historical trading range.
Aqua America Inc. (WTR) reported Q3’11 EPS of $0.30 versus $0.32, matching our forecast and $0.02 below the consensus. Quarterly comparisons are somewhat messy, and due to accounting rules, Q3’10 results are now shown exclusive of the impact of discontinued operations.
Revenues rose 2.0% to $197.3 million, a significant positive as this quarter had the negative impact of horrible weather with Hurricane Irene largely to blame.
David E. Parker