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American Water Works: Down 18% In 2022, Yet Still Richly Valued

Michael Fitzsimmons profile picture
Michael Fitzsimmons


  • Utilities generally outperformed during the 2022 bear-market, but American Water Works' stock was down 18%.
  • Despite the drop, AWK still trades at a rather rich TTM P/E = 21x and a forward P/E = 34x.
  • However, strong federal water infrastructure support, growth by acquisition, and expectations for margin expansion are positive tailwinds for the company going forward.
Water Splash In The Form Of A Drop Wide

BlackJack3D/iStock via Getty Images

American Water Works (NYSE:AWK) provides water and wastewater services to approximately 1,700 communities across 14 states that serve approximately 3.4 million residential and commercial customers. The stock had a tough 2022 (see below), but while FY22 revenue is expected to dip

This article was written by

Michael Fitzsimmons profile picture
Technology stocks, ETFs, portfolio strategy, renewable energy, and O&G companies. Primary goal is growing net-worth. I typically allocate a portion of my own portfolio and devote some of my SA articles to small and medium sized companies offering compelling risk/reward propositions. I am an Electronics Engineer, not a qualified investment advisor. While the information and data presented in my articles are obtained from company documents and/or sources believed to be reliable, they have not been independently verified. Therefore, I cannot guarantee its accuracy. I advise investors conduct their own research and due-diligence and to consult a qualified investment advisor. I explicitly disclaim any liability that may arise from investment decisions you make based on my articles. Thanks for reading and I wish you much investment success!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of XLU either through stock ownership, options, or other derivatives. 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.

I am an electronics engineer, not a CFA. The information and data presented in this article were obtained from company documents and/or sources believed to be reliable, but have not been independently verified. Therefore, the author cannot guarantee their accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for the investment decisions you make.

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Comments (25)

banmate6 profile picture
@Michael Fitzsimmons

Thank you for your article.

Yes, AWK remains richly valued. Yet I continue to hold and reinvest dividends. Here is my AWK investment.

date shares total_price $/share
17-Jul-2012 84.0000 $2,983.75 $35.52000 basis
3-Dec-2012 0.5520 $21.00 $38.04000 div
28-Dec-2012 0.5720 $21.14 $36.96000 div
3-Jun-2013 0.5900 $23.83 $40.39000 div
3-Sep-2013 0.5900 $24.00 $40.68000 div
2-Dec-2013 0.5750 $24.17 $42.03000 div
3-Mar-2014 0.5480 $24.33 $44.40000 div
2-Jun-2014 0.5600 $27.10 $48.34000 div
2-Sep-2014 0.5440 $27.28 $50.13000 div
1-Dec-2014 0.5250 $27.44 $52.27000 div
2-Mar-2015 0.5040 $27.61 $54.77600 div
1-Jun-2015 0.5730 $30.45 $53.17310 div
1-Sep-2015 0.5820 $30.65 $52.65500 div
1-Dec-2015 0.5410 $30.84 $56.97020 div
1-Mar-2016 0.4590 $31.03 $67.54290 div
1-Jun-2016 0.4660 $34.39 $73.81250 div
1-Sep-2016 0.4590 $34.57 $75.38560 div
1-Dec-2016 0.4620 $34.74 $75.12620 div
1-Mar-2017 0.4580 $34.91 $76.28440 div
1-Jun-2017 0.5000 $38.83 $77.59900 div
1-Sep-2017 0.4780 $39.03 $81.73440 div
1-Dec-2017 0.4360 $39.23 $90.04220 div
1-Mar-2018 0.4890 $39.41 $80.57180 div
1-Jun-2018 0.5150 $43.44 $84.28890 div
4-Sep-2018 0.4980 $43.67 $87.69600 div
4-Dec-2018 0.4680 $43.90 $93.80320 div
1-Mar-2019 0.4360 $44.11 $101.07590 div
4-Jun-2019 0.4320 $48.69 $112.64880 div
4-Sep-2019 0.3840 $48.91 $127.28400 div
1-Dec-2019 0.4070 $49.10 $120.55600 div
4-Mar-2020 0.3840 $49.30 $128.24730 div
1-Sep-2020 0.3828 $54.44 $142.21000 div
3-Dec-2020 0.3564 $54.65 $153.33110 div
3-Mar-2021 0.4013 $54.85 $136.67195 div
2-Jun-2021 0.3915 $60.33 $154.09990 div
2-Sep-2021 0.3270 $60.56 $185.20058 div
2-Dec-2021 0.3560 $60.76 $170.69500 div
2-Mar-2022 0.4028 $60.97 $151.37562 div
2-Jun-2022 0.4414 $66.55 $150.77779 div
2-Sep-2022 0.4408 $66.84 $151.63000 div
2-Dec-2022 0.4409 $67.13 $152.26280 div
2-Mar-2023 0.4890 $67.42 $137.88000 div

A $2,983.75 basis is currently worth $14,447.34. A 384.20% gain on 15.99% CAGR. Beating the S&P500 256.099% gain on 12.750% CAGR.

I'm in AWK on the blue gold thesis. Admittedly I am fortune with this performance, on sustained overvaluation. But I wonder if things are changing. Revenue and margins are down, contrasting to growth from 2012 when I bought in.

Like you noted, inflation and rising interest rates make things uncertain. But growth by acquisition might still provide a means of revenue growth. Water services will continue to be important amid global warming and environmental concerns. You can't overcharge I guess, but some charges are necessary to avoid scarcity.

BTW, here is my SA blog entry on AWK: seekingalpha.com/...

SA doesn't allow new blogs unless one is an approved author. I tried getting published, but was told my submission didn't have enough length and depth...which was dead wrong compared to what they accept. I wish SA allowed for blogs, as this was a key feature.
Michael Fitzsimmons profile picture
@banmate6 - congrats on your success. And yes, as I pointed out in the piece, growth by acquisition is the primary growth catalyst for AWK.
It will be better to compare AWK to a water index ETF then XLU.
Michael Fitzsimmons profile picture
@katmandu100 - true, but I wanted to highlight the difference between water and XLU, which is primary gas & electric utilities. I should have done both. But it is easy enough to do ... I mean at some point investors need to do some due-diligence and learning on their own and not just be spoon-fed from SA contributors.
moseharper profile picture
I've owned this company for years and it's made a lot of money for me. I did NOT buy it for it's dividend. It's safe, and it grows revenues in a time-tested manner. You do pay more for better quality companies with higher multiples, but that's the market.
I note that every time AWK announces the purchase of a communities' water/wastewater facilities, planned system upgrades, subsequent applications to State regulators for increased revenue based on those capital improvements, no one ever comments. I read and take note of them. This is how the company grows revenues and why dividends are not that important- what other utilities have a service area that is basically unlimited nationwide? Then throw in all of the US Military bases it services....
Michael Fitzsimmons profile picture
@moseharper - I think you hit on exactly why AWK trades at such a premium to the market and other utilities (especially gas and electric). And why I gave the company a HOLD rating despite the low yield and high valuation. Congrats on your success!
@moseharper — long AWK , happy with its (not it’s) dividend and looking for growth.
moseharper profile picture
@BeachChicken Sorry, but I'm older and the rules have changed on possessives. IT'S (contraction) always been "it's" to indicate possessives.... until recently.
Mr.Sir profile picture
I dont see any replacements in the pipeline on tap water. This is buy and hold (preferably on the downswings)
Michael Fitzsimmons profile picture
@Mr.Sir - would you mind expanding on your first statement please? Thanks!
@Michael Fitzsimmons I think he means it's solid but he doesn't want to pay up. I agree.
Mr.Sir profile picture
@Michael Fitzsimmons water is a necessity to life, I dont see any technology replacing how we get drinking water. Hence AWK or other companies in that industry will continue to do well. I just personally am adding to my position when I have a chance and just let it DRIP. My biggest issue with AWK is I didn't buy it in the 90s when I had the chance.
Charlie's Munger profile picture
@Michael Fitzsimmons and that entry point would be?
Michael Fitzsimmons profile picture
@Charlie's Munger - well, at a 2% yield, and given the current $2.62 dividend, that equates to a $131 stock.

However, and I know it is in a different industry altogether, but MSI has raised its dividend by double-digits for 5 straight years and is - in my opinion - a much more compelling company risk/reward opportunity. I just had an article on MSI published this morning (Editor's Pick, no less). If you get a chance to read it, please leave a comment and let me know what you think. Thanks and Happy New Year!

@Michael Fitzsimmons my average is $40 and happily holding would like to see a split to further increase my gains over time 😬
I own it along with one other water utility.
I wish I could find a decent water ETF that pays 4X a year.
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