CALIFORNIA WATER SERVICE GROUP (CWT) stock intrinsic value fair value estimate & owner earnings analysis

California Water Service Group owns regulated water utilities: Cal Water in California (about 91% of 2025 revenue), plus smaller utilities in Hawaii (about 5%), Washington (about 3%), New Mexico and Texas. It earns money by investing in pipes, wells and treatment plants and then charging rates, set by state regulators, that recover its costs plus an authorized return on that investment. In California that return is currently 7.46% on invested capital (10.27% on the equity portion, 4.23% on the debt portion, with a 53/47 equity-to-debt mix), and the next cost-of-capital filing is now due May 1, 2027. How we measured earning power. For an ordinary company we would charge all capital spending as a cost. For a regulated utility, spending beyond what is needed to keep the existing system intact is new investment that is paid for with new borrowing and new shares and then earns its own regulated return. We therefore charge only spending equal to depreciation as the cost of staying in business, and, to stay consistent, we give no credit for the future growth that the extra spending would buy - except for a small amount of spending already under way (below). The growth is funded by outside money, so crediting the growth without charging the money would count it for free. We first value the whole business - the cash it generates before paying its lenders - and then subtract what it owes. Before interest, the business earned roughly 7.2-7.5% a year on the total money invested in it (debt plus equity) in 2021, 2022 and across 2023-2024 taken together, and 6.8% in 2025. We treat 2023 and 2024 as one period: the California rate case filed in 2021 was not decided until March 2024, which pushed revenue out of 2023 and into 2024. The median of those years is about 7.3%, in line with the authorized 7.46%. The company had about $3.49 billion invested at June 30, 2026, against a 2025 average of $3.16 billion. That extra capital is already built and paid for, and the debt and shares that financed it are counted below. In 2025, pre-interest cash earnings rose about 5% per share compared with the average of 2023-2024. Our first-year figure is about 7% higher per share. The only reason is the capital already in place at June 30, 2026, which we assume earns the same 6.8% it earned in 2025, since the rate case filed in July 2024 is still undecided and the company is collecting temporary inflation-only rates, subject to a true-up once the decision arrives. Base case: first-year pre-interest cash earnings of about $239 million at the 2025 return. From 2027 onward, the return settles at the 7.3% historical median, about $255 million a year, held flat in dollars for as long as the service territory exists. What keeps it going is structural: each year, spending equal to depreciation replaces old pipe with new pipe that earns a regulated return, and Cal Water has run on that basis since 1926. We credit the value created by the remaining 2026 construction spending already under way (about $230 million above depreciation, part of a $580-640 million 2026 program that includes about $79 million for PFAS 'forever chemical' compliance), earning 7.3% after a one-year delay. We do not credit later years of the construction program: they depend on rate-case approvals that have not happened yet, and they are funded with future borrowing and share sales. The business is worth about $4.26 billion, or $68.92 per share. It owes about $1.62 billion, or $26.20 per share. That leaves $42.71 per share. Bear case: rate cases keep taking two to three years to decide (the 2021 case took 32 months, and the 2024 case is now past 26 months), so the business earns only 6.5% on its capital over the long run - below every recent year except 2023, when revenue was held back until the 2021 decision. There is no credit for the construction program. The business is worth about $3.79 billion ($61.28 per share). It owes about $1.63 billion ($26.44 per share), leaving $34.84 per share. Even here, pre-interest cash covers the roughly $75 million annual interest bill about three times over, so the debt is serviceable. Bull case: the pending decision arrives with the 7.46% authorized return fully earned from 2026 (the temporary-rate true-up goes back to January 1, 2026). The 2026-2027 construction plan filed with the rate case earns that return after a one-year delay. The business is worth about $4.45 billion ($71.97 per share). It owes about $1.62 billion ($26.16 per share), leaving $45.81 per share. The upside is limited because a regulated utility cannot earn much more than regulators allow. What the company owes. The debt figure includes $1.47 billion of long-term bonds and notes, $205 million drawn on credit lines at June 30, 2026, and a small outside ownership stake in a subsidiary. Most of the bonds are long-dated and fixed at well below 6% (a 4.57% average coupon, with maturities out to 2061, including $150 million at 3.02% due 2061 and $130 million at 2.87% due 2051). Being locked into that cheap money is worth about $248 million, and we reduced the debt figure by that amount. No large maturity falls due before 2028. We added about $103 million: today's value of refunding roughly $211 million of developer deposits, which are repaid without interest over 40 years ($9.5 million was refunded in 2025). We also included the signed $218 million purchase of Nexus Water Group's Nevada and Oregon systems, expected to close by the end of 2026. Those systems have only about $109 million of regulated investment, so we value them at roughly $118-136 million depending on the case. In effect, the company is paying roughly $85 million more than they are worth to shareholders at a 6% required return. We treated the separate $45 million purchase of the rest of the Texas BVRT utility as roughly break-even, because the filings give too little information about its earnings to do otherwise. Changes from our previous estimate. Our earlier figures were $39 (bear), $57 (base) and $79 (bull). They valued the earnings left after interest and assumed per-share growth continuing indefinitely from a construction program financed with new debt and new shares, without charging for that financing. The borrowing was never subtracted, and the growth was credited for free. This estimate values the business before its lenders, subtracts about $26 per share owed, credits only growth already paid for or under way, and charges the Nexus premium. Two changes pushed in the other direction: earning power is now measured on the larger capital base in place today instead of a ten-year per-share median that included a much smaller company, and the cheap long-term debt now counts as a benefit. On balance the base estimate falls from $57 to about $43 per share, and the bull case falls the most, because the old bull relied on growth that has not been funded. What would make this wrong. On the downside: a California cost-of-capital decision in 2027 that cuts the 10.27% equity return; a punitive or much-delayed outcome on the pending rate case; or disallowed PFAS or Nexus costs. On the upside: faster rate decisions, which would make the construction program worth more than we credit. We could not verify from the annual report the earnings of the Texas BVRT stake or the exact first-half 2026 working-capital movements. Neither changes the picture materially.