American Water Works (AWK) 25Q3 Update

AWK reported 25Q3 EPS of $1.94, up from $1.80 in 24Q3 and exceeding my estimate of $1.91.  Operating revenues rose 9.7% to $1.45 billion.  Billed water service volumes dropped 1.0% and estimated average prices increased 10.6%.  Operating and maintenance expenses rose 5.4%.  Operating income increased 13.1% to $614 million.  Net interest costs rose 19.7%.  Net income increased 8.3% to $379 million.

Management affirmed its 2025 guidance range of $5.65-$5.75.  It initiated 2026 EPS guidance of $6.02-$6.12, which assumes that the seller note is repaid at year-end 2025. Its 2026 guidance implies 8% EPS growth at the midpoint, compared to 2025’s baseline earnings of $5.60-$5.65, which excludes $0.10 per share in interest income from the seller note.  My projections now anticipate 2025 EPS of $5.75 and 2026 EPS of $6.11.

On October 27, AWK and Essential Utilities (WTRG) agreed to an all-stock, tax free merger with a combined equity value of $40 billion and enterprise value of $63 billion.  Management expects that the transaction will close by the end of 27Q1; but closing is subject to antitrust clearance and regulatory approvals.  Upon closing, the company intends to conduct a strategic review of its non-water and non-wastewater businesses.

Since my last report on July 31, AWK’s stock has delivered a total return of –8.7%, significantly underperforming the S&P 500, which is up 12.3%; but its performance is roughly in line with the Dow Jones Water Utility Index’s 6.4% price drop.  The stock suffered a sharp decline of 14.9% from October 21 to October 31, but has trended higher since then, closing today at $130.30, up 5.8% from the October 31 low.  Since the October low, its performance has been roughly in line with the S&P 500 and modestly better than the Dow Jones Water Utility Index.

The poor relative performance of AWK and peers this year reflects further multiple compression, probably due to fluctuations in interest rates, especially the yield on the 10-year Treasury note.  (Utility stocks are widely considered to be bond substitutes, so they often perform poorly when rates or rate expectations rise.)  Because of the sector’s multiple compression, I am lowering my price target on AWK’s stock from $152 to $138, which equates to a forward multiple of 22.5 times (vs. 24.5 times previously) projected 2026 EPS of $6.11.  Along with its 2.5% dividend yield, the potential total return is 8.4%.  Accordingly, I am lowering my performance rating from “1” (Buy) to “3” (Neutral).

The water utility sector’s valuation premium vs. the broader market has shrunk this year, which suggests that investors are placing less value on the sector’s relative safety.  While the sector is subject to regulatory risk (including concerns about the cost to consumers of the service), its revenues and earnings are less exposed to the business cycle, which may offer superior downside protection given the risks in the current economic environment.  A drop in the 10-year Treasury yield, though probably unlikely, could also boost the stock’s valuation multiple.

This is a summary of my recent update report on American Water Works Company, Inc. (AWK). To obtain a copy of the report, please reach out to me using the contact information provided below.

January 16, 2026 (Report published on January 12, 2026.)

Stephen P. Percoco
Lark Research
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Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com

© 2015-2026 by Stephen P. Percoco, Lark Research.   All rights reserved.

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