AWK - American Water Works: A Profitable And Stable Utility Trading At A Discount

2024-03-28 18:02:21 ET

Summary

• American Water Works is the largest publicly traded water utility in the US, providing water supply and wastewater management services to customers in over 13 states.
• The company is highly profitable with excellent business economics and is supported by a mostly constructive rate-setting landscape.
• Current valuations suggest shares may be trading at up to a 10% discount relative to their intrinsic value.
• Some risk still arises from multiple ongoing rate-cases which could see some end in outcomes that limit returns at the utility.
• Buy-rating issued.

Investment Thesis

The American Water Works Company, Inc. ( AWK ) is the largest publicly traded water utility in the United States. The utility provides water supply and wastewater management services to customers across the country through their regulated operations as well as servicing some military facilities too.

AWK remains highly profitable and benefits from what I see as a mostly constructive rate-setting landscape. The firm is also very operationally efficient which helps expand their margins and increase shareholder returns.

Current valuations suggest shares of this highly stable utility may be undervalued by up to 10% which is quite uncommon given the almost bond-like returns....

For further details see: