California Water Service Group's (CWT) improving earnings visibility and higher capital expenditure plans for 2025 to 2028 are catalysts for share gains, BofA Securities said in a note Wednesday.
Despite this, the company trades at the lowest multiple among pure-play regulated water utilities in the US, the brokerage said. California Water Service Group trades at a 19% discount to the closest peer, American States Water (AWR), according to BofA.
The firm also said that California Water Service Group's pending 2024 general rate case covering rates for 2026 to 2028 in California "shows a step change in growth investment, achievable with a balance sheet that is slightly over-equitized currently."
BofA said the company can achieve earnings growth of 8% to 10% through 2028 and continue the trajectory after getting rate case finality, even if the capex, which is nearly twice the size of 2022-2024 capex, faces disallowance or trimming down risk in the rate case approval.
BofA initiated the company's coverage with a buy rating and a $57 price objective, which implies a 17% upside potential.
Price: 48.79, Change: +0.15, Percent Change: +0.31
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