Janney Downgrades American States Water To Sell

• American States Water Co AWR shares have been volatile in 2015 and are up 8 percent year-to-date.
• Janney’s Michael Gaugler downgraded the rating on the company from Neutral to Sell, while maintaining the fair value estimate at $36.
• Investors should book profits in view of the substantial valuation disconnect, Gaugler stated.

Shares of American States Water are trading at a significant premium to other players in the water utility segment, analyst Michael Gaugler said. The high valuation is supported by the company’s efficient management of its dividend policy and use of stock repurchase plans.

American States Water’s low payout ratio of approximately 55 percent can support further dividend increases, Gaugler noted. He added, however, that the company’s earnings growth during 2015-17 is likely to be constrained unless it secures significant new military base contracts.

A better-than-expected outcome of the California General Rate Case, or GRC, may also have a positive impact on the company’s earnings, the Janney report mentioned.

American Water States’ strength lies in its current efficient management team, which has not only taken steps to improve the company’s strategy, but also existed inefficient geographic regions and operations in a bid to boost the returns on capital invested.