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How Investors Are Reacting To H2O America (HTO) Keeping Its Allowed Return on Equity Through 2027

Simply Wall St·11/24/2025 10:23:10
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  • H2O America announced that the California Public Utilities Commission approved a deferral of San Jose Water Company's scheduled 2026 Cost of Capital filing to May 2027, with the allowed return on equity of 9.81% maintained through 2027 unless adjusted by the Water Cost of Capital Mechanism.
  • This regulatory decision aims to reduce administrative costs and provide rate stability for customers, offering the company greater financial visibility over the next two years.
  • We'll now examine how maintaining the current allowed return on equity underpins H2O America's broader investment outlook.

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H2O America Investment Narrative Recap

To be a shareholder in H2O America, you need to believe that regulated, essential water services support stable cash flows, and that infrastructure investments and regulatory approvals provide the foundation for long-term earnings growth. The recent approval by the California Public Utilities Commission to maintain the 9.81% allowed return on equity through 2027 brings stability but does not materially change the company’s most important catalyst, successfully executing its capital plan, or the risk of wholesale water cost increases outpacing allowed revenue adjustments.

Among recent announcements, the September 2025 amendment to H2O America's credit agreement, expanding total commitments to US$350,000,000, stands out in the context of ongoing infrastructure upgrades and acquisitions. Access to additional, longer-term financing supports the company’s ability to pursue these investments, but also brings the associated risk of higher interest expenses impacting future margins and earnings.

However, investors should be aware that if wholesale water expenses rise faster than allowed rate increases in the next review window ...

Read the full narrative on H2O America (it's free!)

H2O America's outlook anticipates $860.2 million in revenue and $125.7 million in earnings by 2028. This scenario requires a 2.9% annual revenue growth rate and a $22.9 million increase in earnings from the current $102.8 million.

Uncover how H2O America's forecasts yield a $61.67 fair value, a 38% upside to its current price.

Exploring Other Perspectives

HTO Community Fair Values as at Nov 2025
HTO Community Fair Values as at Nov 2025

Simply Wall St Community members provided 2 fair value estimates for H2O America shares ranging from US$48.69 to US$61.67. While some see upside beyond the analyst consensus, keep in mind the recent regulatory decision now shaping short-term revenue stability and its wider impact on earnings expectations. Explore more community viewpoints and decide what matters most to your investment approach.

Explore 2 other fair value estimates on H2O America - why the stock might be worth just $48.69!

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.