Assessing American Water Works Company: Is 2025 a Smart Move?
Vivien Schmitt
American Water Works Company, Inc. (AWK) is a leading provider of water and wastewater services in the United States. With a history dating back to 1886, the company serves approximately 14 million people across 24 states, making it a significant player in the utilities sector. This article will help you determine if investing in American Water Works Company is a sound opportunity based on its financial performance, market position, and future outlook.
Table of Contents
American Water Works Company, Inc. operates in the regulated water industry, providing essential water and wastewater services through its subsidiaries. The company serves approximately 3.4 million active customers across 1,700 communities in 14 states. Its diverse customer base includes residential, commercial, industrial, and public authority clients. American Water Works operates numerous facilities, including surface and groundwater treatment plants, wastewater treatment plants, and extensive distribution networks. The company is headquartered in Camden, New Jersey, and has been a vital part of the U.S. infrastructure for over a century.
Key Products of American Water Works Company
American Water Works Company provides a range of water and wastewater services essential for public health and safety.
Product
Description
Water Supply
Provision of potable water to residential and commercial customers.
Wastewater Treatment
Collection and treatment of wastewater to protect public health and the environment.
Water Quality Testing
Regular testing of water quality to ensure compliance with health standards.
Infrastructure Management
Management and maintenance of water distribution and wastewater collection systems.
Revenue Evolution
The revenue evolution of American Water Works Company reflects its growth trajectory and financial health over the years.
Year
Revenue (in millions)
EBITDA (in millions)
EBIT (in millions)
Net Income (in millions)
EPS
2021
3,930
1,910
1,196
1,263
6.94
2022
3,792
1,999
1,273
820
4.51
2023
4,234
2,360
1,504
944
4.89
2024
4,684
2,670
1,718
1,051
5.39
American Water Works Company has shown a consistent increase in revenue, with net income and EPS also reflecting positive growth trends over the years. The company’s ability to maintain profitability while expanding its services is a strong indicator of its operational efficiency.
Financial Ratios Analysis
The financial ratios of American Water Works Company provide insights into its operational efficiency and financial health.
Year
Net Margin
ROE
ROIC
P/E
P/B
Current Ratio
D/E
2021
32.1%
17.3%
4.9%
27.2
4.7
0.73
1.52
2022
21.6%
10.6%
5.1%
33.8
3.6
0.44
1.62
2023
22.3%
9.6%
5.3%
27.0
2.6
0.65
1.27
2024
22.4%
10.2%
5.8%
23.1
2.3
0.39
1.37
Interpretation of Financial Ratios
In 2025, American Water Works Company is expected to maintain a net margin of 22.4%, indicating strong profitability. The return on equity (ROE) is projected at 10.2%, reflecting effective management of shareholder equity. The return on invested capital (ROIC) is also favorable at 5.8%, suggesting efficient use of capital. The price-to-earnings (P/E) ratio of 23.1 indicates that the stock is relatively valued compared to its earnings, while the price-to-book (P/B) ratio of 2.3 suggests a reasonable valuation relative to its book value. The current ratio of 0.39 indicates potential liquidity concerns, while the debt-to-equity (D/E) ratio of 1.37 shows a moderate level of debt.
Evolution of Financial Ratios
The financial ratios of American Water Works Company have shown a mixed trend over the past few years. While the net margin and ROIC have remained relatively stable, the ROE has seen a decline, indicating potential challenges in generating returns for shareholders. The P/E and P/B ratios suggest that the stock may be overvalued compared to its earnings and book value. Overall, the latest year’s ratios indicate a generally favorable position, but caution is warranted due to the liquidity concerns highlighted by the current ratio.
Distribution Policy
American Water Works Company has a consistent distribution policy, with a payout ratio of approximately 56.6%. The annual dividend yield is around 2.4%, which is attractive for income-focused investors. However, the company has faced challenges in covering dividends with cash flow, as indicated by the free cash flow per share being negative. This raises concerns about the sustainability of its dividend policy in the long term.
Sector Analysis
American Water Works Company operates in the regulated water sector, which is characterized by stable demand and significant regulatory oversight. The company holds a substantial market share in the water utility industry, benefiting from its established infrastructure and customer base. However, it faces competitive pressure from other utility providers and potential technological disruptions as the industry evolves.
Main Competitors
The competitive landscape for American Water Works Company includes several key players in the water utility sector.
Company
Market Share
American Water Works Company
15%
Veolia Environnement
12%
American States Water Company
10%
California Water Service Group
8%
Other Competitors
55%
American Water Works Company holds a competitive position in the market, but it must navigate challenges from both established and emerging competitors. The geographic distribution of market shares indicates a diverse competitive landscape, with significant opportunities for growth in underserved areas.
Competitive Advantages
American Water Works Company benefits from several competitive advantages, including its extensive infrastructure, established customer relationships, and regulatory expertise. The company is well-positioned to capitalize on future opportunities, such as expanding its service offerings and entering new markets. Additionally, ongoing investments in technology and sustainability initiatives will enhance its operational efficiency and customer satisfaction.
Stock Analysis
The stock price of American Water Works Company has shown fluctuations over the past year, reflecting broader market trends and company-specific developments.
Trend Analysis
The stock price of American Water Works Company has experienced a long-term upward trend, with a current price of $143.48. Over the past year, the stock has fluctuated between $118.74 and $155.5, indicating a moderate level of volatility. The stock’s beta of 0.697 suggests that it is less volatile than the overall market. The long-term trend appears bullish, with a percentage increase of approximately 20% over the last year.
Volume Analysis
Over the last three months, the average trading volume for American Water Works Company has been approximately 1,329,329 shares. This volume indicates a healthy level of trading activity, with recent trends suggesting a slight increase in buyer-driven volumes. The stock’s performance has been supported by consistent demand, which is a positive sign for potential investors.
Analyst Opinions
Recent analyst recommendations for American Water Works Company have been predominantly positive, with a consensus rating of “Buy.” Analysts cite the company’s strong market position, consistent revenue growth, and commitment to sustainability as key factors supporting their recommendations.
Consumer Opinions
Consumer feedback on American Water Works Company has been generally favorable, with many customers appreciating the reliability of their water services. However, some concerns have been raised regarding pricing and service responsiveness.
Positive Reviews
Negative Reviews
Reliable water supply
High water rates
Good customer service
Slow response times
Commitment to sustainability
Limited service options
Risk Analysis
American Water Works Company faces several risks that could impact its operations and financial performance.
Risk Category
Description
Probability
Potential Impact
Recent Example / Fact
Regulatory
Changes in water regulations may increase operational costs.
Medium
High
N/A
Operational
Infrastructure failures could disrupt service delivery.
Medium
High
N/A
Financial
High levels of debt may limit financial flexibility.
High
Moderate
N/A
Geopolitical
Political instability could affect operations in certain regions.
Low
Moderate
N/A
Technological
Failure to adopt new technologies may hinder competitiveness.
Medium
High
N/A
The most critical risks for investors include regulatory changes and operational disruptions, which could significantly impact the company’s performance.
Summary
In summary, American Water Works Company is a well-established player in the regulated water sector, with a strong market presence and a commitment to sustainability. The company’s financial ratios indicate a generally favorable position, although liquidity concerns warrant caution.
Strengths include a reliable service offering and a solid dividend policy, while weaknesses involve high debt levels and potential regulatory risks.
Strengths
Weaknesses
Strong market position
High debt levels
Reliable service
Regulatory risks
Commitment to sustainability
Liquidity concerns
Should You Buy American Water Works Company?
Given the positive net margin, favorable long-term trend, and increasing buyer volumes, American Water Works Company presents a favorable signal for long-term investment. However, investors should remain cautious due to the liquidity concerns and high debt levels. It may be prudent to monitor the company’s performance closely before making significant investment decisions.
Disclaimer: This article is not financial advice, and each investor is responsible for their own investment choices.
