American Water Works Company, Inc.

AWK Details

American Water Works Company, Inc. (NYSE: AWK) provides water and wastewater services. One of the company's business segments is Regulated Businesses, which includes the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service, and sales for resale customers. It owns the physical assets that it uses to store, pump, treat, and provide water to its customers and the wastewater it collects, processes, transports, and recycles. Its Military Services Group has long-term water and wastewater contracts with the US government at various military locations. It also has contracts with municipal clients to maintain and manage water and wastewater facilities and provide other related services through its Contract Services Group.

Latest News:

• Launch of ID&E Website: On May 5, 2022, AWK announced that it had published its 2021 Inclusion, Diversity & Equity (ID&E) report and interactive website and its Environmental, Social, and Governance (ESG) Data Summary. As part of the company's commitment to data transparency and sharing timely information on critical diversity and ESG metrics. The company's consolidated EEO-1 data for American Water for 2020 and other essential diversity measures are included in the 2021 ID&E report. DiversityatAW.com, a new interactive website that highlights the company's efforts to build an inclusive workplace, contains the report and other information regarding the company's overall ID&E strategy.
• Quarterly Dividend: On April 27, 2022, the company declared a quarterly dividend of USD 0.6025 per common share, payable on June 01, 2022, to shareholders of record on May 10, 2022.

Q1FY22 Results:

• Decline in Topline: The company reported a YoY decline of 5.18% in Operating revenues to USD 842 million in Q1FY22 (ended March 31, 2022) compared to USD 888 million in Q1FY21, driven by decline in Market-Based Business and Other segment.
• Growth in Net Income: AWK witnessed an increase in net income to USD 158 million in Q1FY22 vs. USD 133 million in Q1FY21.
• Healthy Balance Sheet: As of March 31, 2022, the company had a cash balance of USD 75.0 million with outstanding debt of USD 10.73 billion.

Key Risk:

• Customer Concentration Risk: Due to unfavourable economic situations, such as the COVID-19 epidemic or other factors, AWK customers, mainly industrial and big commercial customers, may be forced to cease operations. When a customer's operations are reduced, the customer's water consumption is frequently reduced. In some circumstances, the reduction in usage may be permanent. Any drop in demand due to these customers' difficult economic situations could impact the company's financial health and operating outcomes.

Outlook:

• EPS Guidance: As of Q1FY22, AWK anticipates its FY22 EPS of USD 4.39 – 4.49.      

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

AWK' stock price has fallen 18.17% in the past nine months and is currently trading close to lower-end of its 52-week range of USD 142.63 to USD 189.65. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 180.06.

Considering the correction in the stock price, robust margins, strong dividend yield, current valuation, and associated risks. We recommend a "Buy" rating on the stock at the closing price of USD 146.41, up 0.30% as of May 17, 2022.

1-Year Technical Price Chart (as on May 17,2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.