American Water Works Company, Inc.

AWK Details

American Water Works Company, Inc. (NYSE: AWK) is a company that provides water and wastewater services. Regulated Businesses, which comprise the ownership of utilities that offer water and wastewater services to residential, commercial, industrial, public authority, fire service, and sale for resale consumers, is one of the company's business segments. It owns the physical assets used to store, pump, treat, and supply water to its customers, as well as the wastewater that it collects, processes, transports, and recycles. Its Military Services Group contracts with the US government for long-term water and wastewater services in several military locations. Through its Contract Services Group, it also has contracts with municipal clients to run and manage water and wastewater facilities and provide other associated services.

Latest News:

• Quarterly Dividend: On December 09, 2021, the company declared a quarterly dividend of USD 0.6025 per common share, paid on March 01, 2022, to shareholders of record on February 08, 2022.

FY21 Results:

• Growth in Topline: The company reported a YoY growth of 4.05% in Operating revenues to USD 3.93 billion in FY21 (ended December 31, 2021) compared to USD 3.78 million in FY20, driven by 3.76% growth in Water services segment.
• Growth in Net Income: AWK witnessed an increase in net income to USD 1.26 billion in FY21 vs. USD 709 million in FY20.
• Healthy Balance Sheet: As of December 31, 2021, the company had a cash balance of USD 67.47 million with no outstanding debt.

Key Risk:

• Customer Concentration Risk: Customers of AWK, particularly industrial and large commercial customers, may be forced to halt operations due to adverse economic conditions, such as the COVID-19 epidemic or other factors. When a customer's operations are curtailed, that customer's water usage is often lowered. In more extreme cases, the decrease in use may be permanent. Any decline in demand due to these customers' challenging economic situations could harm its financial health and results of operations.

Outlook:

• EPS Guidance: As of FY21, 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 4.0% in the past six months and is currently trading close to mid-point of its 52-week range of USD 144.20 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 195.45.

Considering the correction in the stock price, strong margins, robust dividend yield, current valuation, and associated risks. We recommend a "Buy" rating on the stock at the closing price of USD 162.44, down 2.24% as of April 18, 2022.

Three-Year Technical Price Chart (April 18, 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.