On Wednesday, BofA Securities began coverage of California Water Service Group (NYSE:CWT), issuing a Buy rating and setting a price target of $57.00. The firm's analysis suggests a 17% upside potential for the water utility company's shares. According to InvestingPro data, the company currently trades at a P/E ratio of 14.01 and has maintained dividend payments for 54 consecutive years, with 32 years of consecutive increases.
The analyst highlighted that California Water Service is trading at the lowest multiple among its peers in the U.S. pure-play regulated water utility sector. This valuation comes despite the company's improved earnings visibility and a significant increase in capital investment planned for the years 2025 to 2028. According to the analyst, California Water Service has sufficient balance sheet capacity to support a potential increase in capital expenditures. InvestingPro's analysis indicates the stock is currently undervalued, with analyst consensus maintaining a bullish outlook and targets ranging from $56 to $61.
BofA Securities expressed a preference for a value-oriented approach within the water utility group, anticipating that the elevated premiums currently seen in the market will align more closely with those of the electric and gas sectors. The firm noted that California Water Service is currently trading at an 8% discount compared to its sub-group and at a 19% discount to its closest peer, American States Water (NYSE:AWR).
The analyst concluded that the company's improving earnings visibility, coupled with the potential for increased capital expenditures, are likely to be key drivers for the stock's performance. This positive outlook is expected to contribute to future share gains for California Water Service Group.
In other recent news, California Water Service Group has reported a substantial increase in its third-quarter earnings for 2024, with a 17.5% rise in operating revenue to $299.6 million.
The company's net income also saw a significant uptick to $60.7 million, which equates to $1.03 per share, a notable increase from $34.4 million, or $0.60 per share, during the same period in 2023. This growth was largely attributed to increased customer rates and usage. The water service provider has also declared a consistent dividend, marking its 319th consecutive quarterly dividend, and has provided updates on its capital structure and environmental initiatives.
The company's operating expenses increased to $232.8 million, primarily due to higher water production costs and taxes. Year-to-date revenue reached $814.6 million, with net income at $171.1 million. The company invested $332.2 million in capital for the first nine months, targeting $385 million for the full year.
Looking forward, California Water Service Group anticipates investing $1.6 billion from 2025 to 2027, with a focus on infrastructure. The company has secured a return on equity of 10.27% for 2025 and expects to collect approximately $94.2 million over the next three years from regulatory balances.
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