American Water Works (AWK -0.7%) is downgraded to Neutral from Outperform with an $82 price target at Baird, which says the stock's valuation is nearing historical highs and now trades above its five-year average forward P/E multiple.
Baird says AWK may face some risk from a rising interest rate environment as investors may look to comparatively more attractive opportunities in the bond market.
Even so, the firm says it continues to like the company and its management, and will look for a better entry point or further execution before becoming more constructive.
American Water Works (AWK -0.2%) is upgraded to Buy from Neutral with an $84 price target, raised from $77, at BofA Merrill Lynch, saying AWK's dominant size and scope positions the company to “benefit the most from increased infrastructure spend and privatization."
Pres.-elect Trump’s infrastructure platform likely would support M&A and organic growth, the firm says, and AWK's bolt-on acquisition strategy would benefit if government policy leans towards the use of private capital for infrastructure investment.
AWK has a $12.6B market cap, which gives it a competitive edge in terms of cost of funds and footprint vs. its much smaller publicly owned peers, BofA says.
Severe storms in central and western Pennsylvania yesterday sent floodwaters into hundreds of homes and caused the rupture of a Sunoco Logistics (NYSE:SXL) pipeline that dumped 55K gallons of gasoline into a creek in Lycoming County.
Pennsylvania American Water (NYSE:AWK) shut down its treatment plant along the Susquehanna River in Milton after state environmental officials warned the gasoline spill was nearing the area; the company says it should have adequate water supplies by redirecting water from another treatment plant.
SXL says crews are using skimmers to remove gasoline from impacted waterways and erecting containment booms downstream.
American Water Works (AWK -0.1%) is initiated with an Outperform rating and $82 price target at Baird, which believes the company should be able to drive consistent earnings growth through investments in water infrastructure, acquisitions in the regulated market and growth in market-based segments.
The firm also expects AWK to consistently increase its rate base through its broad geographical footprint.
Although current water utility valuations are high based on historical multiples, Baird believes AWK is well positioned to remain a market leader, which should demand a premium multiple.
Baird also starts coverage of California Water (CWT -1%) and Aqua America (WTR -0.7%) with Neutral ratings; CWT should see a step up in revenue and earnings beginning in 2017, pending a final decision on the 2015 general rate case in California, while WTR offers solid long-term prospects given its capital investment strategy and successful track record of growth through acquisitions.