Valuation Scorecard: Stock Rating F-Lowest (2/27/24)-American States Water Co (AWR).

Over the next 6 years, American States Water shares will need to reach $128 to achieve average annual stock market performance of 9.0%. To achieve Upper quartile performance, American States Water’s stock price will need to reach $150 by 2028. At the current price of $76, what are market expectations regarding American States Water’s future operating performance?

Executive Summary

• Key American States Water characteristics: very high profitability, high stability, above average expected growth, and above average financial strength. A big positive influence on American States Water’s valuation is its superior Risk Profile.
• Very high valuation, below market shareholder returns. Current valuation levels are very high relative to the American States Water Peer Group. Recent market returns have underperformed the American States Water Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, American States Water shares should reach a level of $59 by 2028 — an -1.2% per year total shareholder return. A 2028 stock price of $128 would reflect median performance and a price of $150 would be required to reach upper quartile performance.
• American States Water’s historical growth is average. Historical growth has been average relative to the American States Water Peer Group and forecasted growth is relatively average. Asset Growth has been superior. Revenue Growth, and EPS Growth have lagged. American States Water’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable. American States Water’s consensus growth expectations are lower than historical growth.
• Return on Equity, Pretax Margin, Pretax ROA, and Asset Turnover are all group leading. These factors have strengthened market perceptions of American States Water. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Risk Profile has been American States Water’s biggest valuation strength. American States Water’s risk profile is very favorable. Overall variability has been relatively low with relatively low revenue variability, relatively low E.P.S. variability, and very low stock price volatility. Financial Strength is only average and earnings’ expectations are relatively very high. The debt/capital ratio has been relatively steady.

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