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American Water Works announced two separate projects this week to replace aging water pipes in Fayetteville and Glen Jean, West Virginia. These projects represent a combined investment of about 1.5 million dollars. For a regulated utility, these small local projects are the engine of growth. The company is allowed to raise the prices it charges customers to earn a return on the money it spends to modernize its system. While these specific upgrades are small, they add to the billions of dollars in annual spending that drives the company's long-term profit growth.
Source: PRNewsWire
After American Water Works reported its October results, we cut our quality score to 3.7. We changed our rating to Watch because the business is now growing more slowly than we previously assumed. We have added the cost of power and chemicals to what we track, as these expenses can now move faster than regulators allow the company to raise its prices. We also updated our expectations for how many customers the company adds by buying smaller water systems each year.
The company reported adjusted earnings of $2.00 per share, which was slightly below what analysts expected but up from $1.89 a year ago. Revenue of $1.51 billion also came in lower than the $1.58 billion target. Despite the slight miss on the headline numbers, management raised the bottom end of its profit goals for the full year, signaling confidence in its ability to finish 2026 strong.
For a utility, the most important driver is the "rate case," which is the process of getting state regulators to approve price increases to pay for new pipes and plants. The company has already secured about $575 million in new annualized revenue this year through these approvals. Looking ahead, it expects profit to grow another 8 percent in 2027, which supports our view that this is a steady, predictable business that can grow even when the broader economy is uncertain.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
American Water Works reports its latest results today. Analysts expect the company to show revenue of about 1.58 billion dollars for the quarter.
The most important thing to watch is the company's progress on its heavy spending plan. Because regulators allow the company to earn a set return on the money it spends to upgrade old pipes and treatment plants, this spending is the main engine that drives its profit growth. We will also be looking for any updates on the planned merger with Essential Utilities, which is key to the company's goal of becoming a larger national player.
New Jersey American Water completed a 21.3 million dollar project to install permanent treatment for PFAS, which are long-lasting chemicals often found in industrial waste. This project helps the company meet strict federal and state drinking water standards.
For a regulated utility, finishing these projects is how the business grows. By investing in modern infrastructure, the company builds a case for regulators to approve future rate increases, which allows it to earn a return on the capital it has deployed.
Source: PRNewsWire
Management tends to set a high bar that they occasionally miss by a few cents, but they consistently raise their full-year targets as the year progresses.
| Expectation | |
|---|---|
| EPS | $1.43 |
| Revenue | $1.34B |
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