American Water shares fall on weak 2010 EPS guidance

American Water’s shares were marked down by 5% on 1st March after the company failed to hit the market’s Q4 EPS consensus, and simultaneously initiated ultra-conservative earnings guidance for 2010.

Excluding goodwill impairment charges, American Water generated net income of $209.9 million in 2009 (+19.2%) on revenues of $2.4 billion (+4.4%), resulting in earnings per share growth of +13.6% – comfortably ahead of its long-term target of 7-10%.

Nevertheless, the newly introduced 2010 EPS guidance of $1.30-1.40 was described as “perplexing” by Debra Coy of Janney Montgomery Scott, who had been banking on a few more years of mid-teens EPS growth.

Coy’s bullish outlook is linked to American’s ongoing success at playing rate case catch-up, which was more than enough to offset the effects of decreased water consumption in 2009. The company continues to under-earn relative to its allowed ROEs, and is currently awaiting rulings on rate cases worth $218.9 million.