American States Water cut to Sell equivalent rating at Wells Fargo (NYSE:AWR)

American States Water (NYSE:AWR) settled -9% Thursday after Wells Fargo downgraded shares to Underweight from Equal Weight with an $85 price target, citing a high valuation compared with peers, while American Water Works (NYSE:AWK) closed -3% as the bank upgraded shares to Equal Weight with a $140 PT.

American States (AWR) has outperformed peers, likely because of positive California regulatory developments as well as the company’s strongest balance sheet in the industry, with no need for external equity expected for at least five years.

While Wells analysts Jonathan Reeder and Neil Kalton believe the stock’s relative premium is justified, “it is arguably a bit steep given a forecasted growth rate that is relatively consistent with peers.”

After falling nearly 30% YTD, American Water Works (AWK) shares now trade at a modest discount to peers compared to the usual 5%-15% premium in recent years; fundamentally, the analysts expect the company will deliver higher and more consistent earnings and dividend growth than peers.

Of the water utilities in its coverage, Wells Fargo rates only Essential Utilities (NYSE:WTRG) at Overweight, seeing the shares as undervalued and believing the company can deliver on its 5%-7% EPS compound annual growth rate target.

Essential Utilities (WTRG) trades at a relatively expensive valuation with muted growth prospects, Mike Zaccardi writes in an analysis published on Seeking Alpha.