American Water Works Company Inc. AWK continues to expand operations through organic and inorganic initiatives. Rising earnings estimates, long-term investment plans and growth opportunities make AWK a solid investment option in the utility sector.

Let us focus on the factors that make this Zacks Rank #2 (Buy) company a strong investment pick at the moment.

AWK’s Earnings Projections & Growth Rate

The Zacks Consensus Estimate for 2025 earnings per share (EPS) has moved up 0.2% in the past 90 days to $5.70.

The Zacks Consensus Estimate for 2025 revenues is pinned at $4.66 billion, implying an increase of 2.07% from a year ago.

AWK’s long-term (three-to-five years) earnings growth rate is 8.2%.

AWK’s Systematic Investments & Rate Hikes

American Water Works plans to invest $3.3 billion in 2025 to strengthen and expand its water and wastewater infrastructure, with a major portion utilized for infrastructure improvements in Regulated Businesses. It aims to invest in the range of $17-$18 billion in 2025-2029 and in the band of $40-$42 billion during 2025-2034. These systematic investments will extend and strengthen AWK's infrastructure, assisting it in catering to the rising demand from the company’s expanding customer base and, in turn, generating more revenues.

AWK recoups the capital investment made in its infrastructure through rate hikes at regular intervals. The new rates, effective since Jan. 1, 2024, added $346 million to the company’s annual revenues. The pending rate case, if approved without any change, will further increase the top line by $375 million.

Dividend History of AWK

American Water Works has consistently increased shareholders' value by paying dividends. Currently, its quarterly dividend is 76.50 cents per share, resulting in an annualized payout of $3.06. The company expects its dividend per share to increase 7-9% in the long term, subject to approval from AWK’s board of directors. AWK’s current dividend yield is 2.42%, better than the Zacks S&P 500 composite’s 1.51%.

Solvency

The time-to-interest earned ratio at the end of third-quarter 2024 was 3.5. The ratio, being greater than one, indicates American Water Works’ ability to meet future interest obligations without difficulties.

AWK Expands Through Acquisition

The company is expanding its customer base through organic initiatives and acquisitions. In 2023, it added 18,100 customers through 23 acquisitions in eight states. In the first nine months of 2024, it completed five acquisitions, which added 33,400 new customers. American Water Works’ pending 22 acquisitions (as of Oct. 30, 2024), when completed, will add another 43,400 to its customer base. Acquisitions allow AWK to get fresh demand for its services and expand the company’s revenue stream.

AWK remains committed to expanding its business through inorganic and organic ways. American Water continues to focus on the acquisition of utilities that provide services to 5,000-50,000 customers. The company is also open to large acquisitions if an opportunity arises.

AWK’s Price Performance

In the past month, the stock has gained 0.4% compared with the industry’s 0.2% growth.

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Other Stocks to Consider

Some other top-ranked stocks in the same sector are Dominion Energy D, American States Water AWR and Atmos Energy ATO, each carrying a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

D’s long-term earnings growth rate is 13.6%. The Zacks Consensus Estimate for 2025 EPS has increased 0.3% in the past 60 days.

AWR’s long-term earnings growth rate is 1.85%. The Zacks Consensus Estimate for 2025 EPS indicates year-over-year growth of 10.71%.

ATO’s long-term earnings growth rate is 7.01%. The Zacks Consensus Estimate for fiscal 2025 EPS has increased 0.3% in the past 60 days.

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