American Water Works (AWK) Investments Aid Amid Rate Hikes
American Water Works Company’s AWK planned capital investments, expansion of the customer base through organic and inorganic initiatives, cost management and the optimization of market-based businesses are expected to drive its performance over the long run.
Tailwinds
American Water Works has plans to invest $13 to $14 billion in the 2022-2026 period and $28 to $32 billion in the 2022-2031 period. The company plans to make capital investments of nearly $2.5 billion in 2022, with a major portion to be utilized for infrastructure improvements in regulated businesses.
AWK is expanding the customer base through organic initiatives and acquisitions. AWK’s pending acquisitions (as of Jun 30, 2022) will add another 29,200 customers to the customer base after completion. As of Jun 30, 2022, the company added 51,000 customers to its existing customer base through nine closed acquisitions.
Amid the unprecedented economic crisis, AWK has ample liquidity to meet debt obligations. The times interest earned ratio at second-quarter end was 5.1. This indicates that the company has enough financial strength to meet debt obligations without any difficulty.
Headwinds
Despite the ongoing upgrades, a major portion of the existing water lines and mainline are nearing the end of their effective usage life, which increases the possibility of breakage of the water main and disruption of water services.
The interest rate hikes increase project expenses as a result of higher borrowing costs.
Weather fluctuation plays a significant role in the demand for fresh water and wastewater services. Unfavorable weather conditions in summer can lower profitability.
Other Industry Players
Other stocks from the same industry include Consolidated Water Company CWCO, Global Water Resources Inc. GWRS and Essential Utilities Inc. WTRG.
The long-term earnings growth rate of Consolidated Water, Global Water Resources and Essential Utilities is projected at 8%, 15% and 6.1%, respectively.
The Zacks Consensus Estimate for 2022 earnings per share of Consolidated Water, Global Water Resources and Essential Utilities implies an increase of 217.4%, 25% and 6.6%, respectively, year over year.
CWCO, GWRS and WTRG’s current dividend yield of 2%, 2.4% and 2.6% is better than the industry’s average of 1.9%.
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
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