California Water Service Group

California Water Service Group (NYSE: CWT) is a holding company that provides water utility and other related services in California, Washington, New Mexico, Hawaii and Texas through its subsidiaries. Its business is conducted through its operating subsidiaries and provides utility services. Its business consists of the production, purchase, storage, treatment, testing, distribution, and sale of water for domestic, industrial, public, and irrigation uses, and the provision of domestic and municipal fire protection services.

Key Business & Financial Updates

• Q2 2024 Financial Highlights: In the second quarter of 2024, the company reported diluted earnings per share of USD 0.70, a significant increase compared to USD 0.17 in Q2 2023. During the first six months of 2024, USD 214.4 million was invested in water system infrastructure. Additionally, the company declared its 318th consecutive quarterly dividend at USD 0.28 per share. In July, the company filed its 2024 General Rate Case (GRC) and Infrastructure Improvement Plans for 2025-2027 with the California Public Utilities Commission (CPUC), including a Low-Use Water Equity Program aimed at supporting lower-income customers with low water usage. The company also received affirmation of its A+ Stable credit rating from S&P Global.
• CEO's Commentary on Financial Results: Chairman and CEO Martin A. Kropelnicki highlighted that the financial performance in Q2 2024 was positively influenced by the 2021 California General Rate Case decision, which was finalized on March 7, 2024. Kropelnicki expressed satisfaction with the team’s efforts in preparing the 2024 California General Rate Case, emphasizing the company's commitment to infrastructure investment, expense management, and customer affordability. He reiterated the company’s dedication to ensuring a sustainable and reliable water supply for future generations.
• Q2 2024 Financial Performance: Net income attributable to the group for Q2 2024 stood at USD 40.6 million, a significant improvement from USD 9.6 million in Q2 2023. Operating revenue for the quarter increased to USD 244.3 million from USD 194.0 million in the previous year, driven by higher rates, accrued unbilled revenue, and rate mechanisms approved in the 2021 California GRC, which contributed USD 16.7 million. Operating expenses rose by USD 18.0 million to USD 196.1 million, largely due to higher water production costs and increased income tax expenses, which reached USD 8.7 million.
• Year-to-Date 2024 Financial Overview: For the first half of 2024, net income attributable to the group was USD 110.5 million, compared to a net loss of USD 12.7 million during the same period in 2023. Operating revenue increased by USD 189.9 million to USD 515.0 million, largely driven by a cumulative adjustment of USD 131.5 million related to the 2021 California GRC decision. Operating expenses for the six-month period reached USD 389.0 million, reflecting increases in water production costs and other operations expenses. The company also recognized USD 64.0 million in interim rate relief attributable to 2023.
• Capital Investment and Liquidity: As of June 30, 2024, the company held USD 82.7 million in cash, of which USD 45.4 million was classified as restricted, and had an additional borrowing capacity of USD 355 million. During the first half of 2024, the group invested USD 214.4 million in capital improvements, representing 56% of its USD 385 million capital investment target for the year. In July, the group’s subsidiary, California Water Service, submitted Infrastructure Improvement Plans for 2025-2027, proposing to invest over USD 1.6 billion in California’s water systems, including USD 1.3 billion in new capital investments.
• Environmental and Regulatory Developments: The company continued its efforts to address PFAS contamination costs, in line with the U.S. Environmental Protection Agency’s new regulations on PFAS. While these regulations face legal challenges, the company is working towards compliance and seeking financial recovery from responsible parties, including class action settlements with 3M and DuPont. Additionally, the company's 2023 Environmental, Social, and Governance (ESG) Report, released in May, detailed its achievements and progress in areas such as environmental stewardship, customer service, and workforce engagement, aligning with recognized sustainability standards.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) for the 14-day period stands at 64.88, indicating an upward trend with the potential for further momentum if the stock surpasses the resistance range of USD 55.00 to USD 57.00. Currently positioned above both the 50-day and 200-day Simple Moving Averages (SMA), the stock benefits from strong short- to medium-term support levels. This alignment suggests that a breakout above the USD 55.00 – USD 57.00 resistance could trigger a sustained upward trend, particularly if the support range of USD 50.00 – USD 52.00 remains intact.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘Buy’ rating has been given to California Water Service Group (NYSE: CWT) at the closing market price of USD 55.33 as of August 30, 2024. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is August 30, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.s

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.