American Water Works Company Inc (AWK) is expected to see growth as it improves earned returns through cost-containment efforts, a benefit of asset swapping with other water companies, and is showing a 7% to 10% EPS CAGR, says Heike Doerr, Senior Research Associate at Robert W. Baird & Co.
“We currently have an ‘outperform’ on American Water, which we believe will close its trading discount to the group as it improves earned returns through cost-containment efforts, the benefit of recent portfolio swaps, and growth of its nonregulated business. At 7% to 10% EPS CAGR, we believe AWK has the most attractive growth outlook of the group,” Doerr said.
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AWK‘s engagement in portfolio optimization, or asset swapping, with other water companies is how the company is finding additional opportunities and stimulating growth, Doerr says.
“We saw Aqua (WTR) and America (AWK) engage in portfolio optimization — asset swapping — as means of improving margins and stimulating earnings growth. Each company exited states where they had not been as impactful, and increased their customer count in states where they had better regulatory relationships and additional growth opportunities,” Doerr said.
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