Morningstar | American Water Works Posts In-Line 2018 Results and Reaffirms Earnings Guidance
We are reaffirming our $83 fair value estimate for American Water Works after the company reported strong 2018 earnings driven by exceptional growth in its market-based segment and regulated businesses and reaffirmed earnings guidance. Adjusted earnings per share for 2018 were $3.30 versus $3.03 in 2017. Consolidated EPS were in line with our estimate and $0.01 less than consensus.Individual segments were roughly in line with our estimates. The regulated segment contributed an incremental $0.23 per share, or 7.4%, over 2017. The market-based segment added $0.09 per share over 2017, a 37.5% increase. The parent and other segment was an additional drag of $0.05 per share in 2018 versus 2017.
American Water reaffirmed its 2019 adjusted EPS guidance of $3.54-$3.64 and expects to increase earnings in the top half of its 7%-10% annual growth target over the next five years. Our 2019 EPS estimate of $3.60 is just above the midpoint of guidance. However, our 2022 EPS estimate of $4.60 represents a compound annual growth rate of 8.7%, near the midpoint of guidance. We will likely review and possibly raise our earnings growth rate considering the recent strong performance and guidance. This increase would probably result in a modest uplift in our fair value estimate.
Although the problems at Keystone were a drag on earnings in the recently ended quarter, for the full year they were more than offset by the strong performance of homeowner services and the contribution of the midyear acquisition of Pivotal Home Solutions.
American Water also reaffirmed its annual dividend growth guidance to match EPS growth, or in the top half of the 7%-10% range. 2019 will be the sixth consecutive year of dividend growth of approximately 10%. We see no reason that trend won’t continue for the foreseeable future.
American Water Works is a holding company. Through its subsidiaries, the company is a publicly-traded water and wastewater utility company. The company provides drinking water, wastewater and other related services to people in various states. The company's Regulated Businesses provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers. The company's Market-Based Businesses provide complementary home services primarily to residential and smaller commercial customers and water and wastewater services to the United States government on military installations, as well as municipalities, utilities and industrial customers.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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