AWK reported 24Q3 EPS of $1.80, up from $1.66 in 23Q3 and above my estimate of $1.67. Operating revenues rose 13.4% to $1.32 billion. Water and wastewater revenues increased 11.3%, with billed water service volumes up 2.8% and estimated average prices up 7.6%. Military and contract services revenues jumped 44%, due to the timing of capital projects. Consolidated operating and maintenance expenses increased 13.8%, mostly due to higher purchased water cost and usage, increased employee-related costs and higher project-related costs. Operating income rose 13.6% to $543 million; but the increase was partially offset by higher interest costs. Thus, net income increased 8.4%.
Management maintained its 2024 EPS guidance of $5.25-$5.30. It also initiated 2025 EPS guidance of $5.65-$5.75, up 8.1% at the midpoint. Both 2024 and 2025 earnings per share include $0.10 of interest income from a seller note that AWK took back on the sale of its Homeowner Services business. That note matures in December 2026, so the company could lose that income, if the note is refinanced elsewhere.
Based upon AWK’s 24Q3 performance, I have raised my 2024 EPS estimate from $5.27 to $5.30, which is at the high end of management’s guidance range. For 2025, I have raised my EPS estimate from $5.67 to $5.70, which is at the midpoint of management’s guidance.
Since my last report on August 6, AWK’s stock has fallen 4.6% in price, underperforming the S&P 500, which is up 10.5%, but its performance is in line with the Dow Jones Water Utility’s 5.0% decline. The performance of AWK and its peer group mirrored the S&P 500 until mid-September, but both have since underperformed due to multiple compression caused by rising interest rates.
Based upon my EPS projections, I am maintaining my price target of $152 for AWK’s stock. The new price target implies a forward valuation multiple of 26.6 times projected 2025 EPS of $5.70, modestly above its current near-term forward multiple of 25.7 and above the peer group average of 22. Along with its 2.3% dividend yield, the potential total return is 14.0%. Accordingly, I am raising my performance rating from “3” (Neutral) to “2” (Outperform).
This is a summary of my recent update report on American Water Works Company (AWK). To obtain a copy of the report, please reach out to me using the contact information provided below.
November 18, 2024 (Report published on November 2, 2024.)
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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