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American Water Works: Solid Utility, But A Bit Pricey At Current Levels

Hale Stewart profile picture
Hale Stewart


  • American Water Works is a well-run water utility.
  • Its operating margin has increased over the last five years while the debt/asset ratio is contained.
  • It's a bit pricey for a 2.1% yield.

American Water Works (NYSE:AWK) is the largest water utility by market capitalization, which is currently $14 billion. The next largest competitor is half its size. Out of 14 industry members, AWK has the 6th highest PE (25.86), the 7th highest forward PE (22.42), and the 9th highest dividend (currently yielding 2.10%).

Like other utilities, water utilities have been decreasing for the last few months as interest rates have increased:

AWK's chart shows it is in a downtrend as well:

Prices are now below the 200-day EMA as well as the shorter EMAs (the 10-, 20-, and 50-day). Momentum is negative but rising. According to the wider Bollinger Bands, overall volatility is higher.

While the company operates in 16 states, 6 are responsible for 87% of its revenue and 85% of its customers:

Consumers make up slightly over 50% of the customer base:

Let's turn to the numbers, starting with the relevant data from the income statement (data from Morningstar.com; author's calculations):

Unlike utilities from the energy sector, AWK's revenue has increased modestly for the last four years. Next up, notice that it doesn't have a gross margin, which is due to its raw material mostly coming from public sources:

Purchased water is folded into operating expenses. While the operating margin has improved, the net margin has bounced around a bit due to interest and financing related issues. The company generates plenty of EBIT, which has also been growing as a percentage of gross revenue. The debt/asset ratio has decreased marginally. Income investors should be pleased with the company's conservative payout ratio.

An item from the cash flow should be highlighted:

The company has projected a capital spending increase of $7.2 billion over the next five years, meaning it'll have to make fairly large rate requests going forward.

The stock is

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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