Core Viewpoint - American Water Works Company, Inc. (AWK) is positioned as a strong investment option in the utility sector due to strategic capital investments aimed at enhancing infrastructure and reliability, alongside rising earnings estimates [1] Growth Projections & Surprise History - The Zacks Consensus Estimate for AWK's earnings per share (EPS) for 2024 and 2025 has increased by 0.6% and 0.2% respectively over the past 60 days [2] - The consensus estimates for sales in 2024 and 2025 are projected at $4.42 billion and $4.55 billion, reflecting year-over-year growth of 4.3% and 3.1% respectively [2] - AWK's long-term earnings growth rate is estimated at 8%, with an average earnings surprise of 1.1% over the last four quarters [2] Financial Health - AWK's total debt to capital ratio stands at 56.4%, which is better than the sector average of 57.9% [3] - The company's time-to-interest earned ratio was 3.5 at the end of Q2, indicating a strong ability to meet future interest obligations [3] Expansion Strategy - In the first half of 2024, AWK completed five acquisitions, adding 33,400 new customers, with 22 pending acquisitions expected to add another 59,000 customers [4] - AWK's organic operations, including extensive infrastructure, contribute significantly to its earnings [4] Long-term Investments - AWK invested $1.4 billion in upgrades and acquisitions in the first half of 2024 and plans to invest $3.1 billion throughout the year [5] - The company aims to invest $16-$17 billion from 2024 to 2028 and $34-$38 billion from 2024 to 2033, with 69% of the 2024-2033 expenditure focused on infrastructure strengthening [5] Dividend Information - AWK has a current dividend yield of 2.09%, surpassing the S&P 500 composite average of 1.5% [6] - The company anticipates a long-term increase in its dividend per share in the range of 7-9%, pending board approval [6] Share Performance - AWK shares have increased by 23.2% over the past six months, outperforming the industry growth of 17% [7]

Core Viewpoint - The Federal Reserve's recent 50 basis point interest rate cut aims to support the economy amid recession fears, impacting various sectors positively, particularly interest rate-sensitive stocks [1][3]. Group 1: Interest Rate Impact on Sectors - The fintech sector is expected to benefit from lower interest rates, as previous high rates hindered technological advancements and product innovation [3]. - Utility companies, which require significant capital for infrastructure upgrades, will gain from reduced borrowing costs due to the rate cut [3]. - The home building industry will see a boost as lower mortgage rates encourage home purchases, driven by the substantial 50 basis point cut [3]. Group 2: Recommended Stocks - PayPal Holdings Inc. (Zacks Rank 1) is experiencing robust growth in total payment volume, with projected EPS growth of 10.8% and revenue growth of 7.6% for the next year [4][5]. - Fidelity National Information Services Inc. (Zacks Rank 2) is benefiting from organic growth in banking solutions, with a projected EPS growth of 11.6% and revenue growth of 4.1% for the next year [7][8]. - American Water Works Co. Inc. (Zacks Rank 2) is expanding through acquisitions and infrastructure investments, with projected EPS growth of 8% and revenue growth of 3.1% for the next year [11][12]. - OGE Energy Corp. (Zacks Rank 2) plans a $6 billion investment to upgrade infrastructure, with projected EPS growth of 5.6% and revenue growth of 11.3% for the next year [14][15]. - M/I Homes Inc. (Zacks Rank 1) is recognized for its strong customer service and innovative designs, with projected EPS growth of 5.6% and revenue growth of 5.1% for the next year [17][19].

Core Viewpoint - The utilities sector is expected to benefit from anticipated interest rate cuts, with a focus on five selected utility stocks that show positive earnings growth potential and stable revenue growth [1][2][6]. Utilities Sector Overview - The utilities sector is typically defensive, but it has surprisingly become a strong performer in 2024, rallying 21.7% year-to-date, contrasting with a decline of over 11% in 2023 [3][5]. - Utilities are capital-intensive and rely on consistent investments for infrastructure upgrades, making them sensitive to changes in interest rates [1][5]. Selected Utility Stocks - **NiSource Inc. (NI)**: Plans to invest $16.4 billion through 2028 for infrastructure modernization, with a projected EPS growth of 6.8% and revenue growth of 12.1% for the next year. Current dividend yield is 3.2% [7][8]. - **American Water Works Co. Inc. (AWK)**: Benefits from acquired assets and military contracts, with projected EPS growth of 8% and revenue growth of 3.1%. Current dividend yield is 2.1% [9][10]. - **Xcel Energy Inc. (XEL)**: Focused on reducing coal usage and achieving carbon neutrality by 2050, with projected EPS growth of 8% and revenue growth of 6.2%. Current dividend yield is 3.5% [11][12]. - **Evergy Inc. (EVRG)**: Expanding operations in the transmission market and aiming for carbon neutrality by 2045, with projected EPS growth of 4.9% and revenue growth of 2%. Current dividend yield is 4.3% [13][14]. - **DTE Energy Co. (DTE)**: Plans to invest $20 billion from 2024 to 2028, promoting clean energy and targeting zero-carbon emissions by 2050, with projected EPS growth of 7.3% and revenue growth of 4.3%. Current dividend yield is 3.3% [15][16].

Industry Overview - The Zacks Utility - Water Supply industry is providing continuous services to millions of customers in the U.S. and is focusing on infrastructure upgrades and maintenance to enhance service reliability [1] - The U.S. water infrastructure, comprising over 2.2 million miles of pipelines, is aging, with nearly 20% of installed water mains beyond their useful lives, leading to significant water waste and potential contamination [2] - An estimated $896 billion investment is required over the next 20 years to sustain and expand drinking water and wastewater services to meet demand, according to the U.S. Environmental Protection Agency [2] - The regulated water industry is fragmented, posing operational challenges for small service providers in meeting funding requirements for necessary upgrades [3] - The Federal Reserve's intention to cut interest rates may allow utility providers to secure funding at lower costs for infrastructure projects [3] Company Performance - American Water Works Company (AWK) has a three-month return of 12.6%, a dividend yield of 2.13%, and plans to invest $3.1 billion in 2024, with a total investment of $16-17 billion planned from 2024 to 2028 [6] - American States Water Company (AWR) has achieved a three-month return of 15.4%, a dividend yield of 2.30%, and aims to invest $573.1 million from 2025 to 2027 [7] - SJW Group has reported a three-month return of 13.1%, a dividend yield of 2.72%, and plans to invest $540 million in water and wastewater infrastructure over the next three years [8]

Market Overview - Volatility has returned to Wall Street, disrupting the rebound following a significant selloff in early August, primarily due to fears over the economy's health triggered by disappointing jobs data [1][2] - September has historically been one of the worst months for stocks, which may prolong market volatility [4] Jobs Data Impact - The weak jobs data released indicated that private payrolls added only 99,000 jobs in August, the smallest increase since January 2021, and significantly below the consensus estimate of 145,000 [2] - Following the jobs report, the Dow declined by 0.5% and the S&P 500 shed 0.3%, marking the third consecutive session of decline for the S&P 500 [2] Manufacturing Sector - The manufacturing sector has been struggling, with the Institute for Supply Management (ISM) reporting a manufacturing PMI of 47.2 in August, indicating contraction as it is below the neutral level of 50 [3] - Higher borrowing costs have increased raw material costs and reduced demand in the manufacturing sector [3] Federal Reserve and Inflation - Inflation has decreased sharply but remains above the Federal Reserve's target of 2%, with expectations of a 25-basis-point rate cut this month [3] - The Federal Reserve has not yet clarified the magnitude or number of rate cuts planned for the year [3] Defensive Investment Recommendations - Given the current market conditions, investing in utility stocks is recommended as they are considered defensive in nature [1][5] - Suggested utility stocks include: - **American Water Works Company, Inc. (AWK)**: Expected earnings growth rate of 7.4%, beta of 0.69, and a dividend yield of 2.12% [6][7] - **American States Water Company (AWR)**: Expected earnings growth rate of 6.3%, beta of 0.49, and a dividend yield of 2.29% [9] - **Evergy, Inc. (EVRG)**: Expected earnings growth rate of 8.8%, beta of 0.62, and a dividend yield of 4.27% [11] - **OGE Energy Corp. (OGE)**: Expected earnings growth rate of 3.4%, beta of 0.74, and a dividend yield of 4.27% [14]

Group 1: Company Developments - American Water Works (AWK) announced the acquisition of Silver Creek Water Corporation for $45 million, expected to close in mid-November, adding 8,000 water customers to its Indiana American Water unit [1] - Indiana American Water has made strategic acquisitions in 2023, including Claypool Water System and Sunset Village Water System, which added 250 water customers [1] - AWK completed five acquisitions in the first half of 2024, adding nearly 33,400 new customers, with 22 pending acquisitions expected to add another 59,000 customers [3] Group 2: Industry Trends - The U.S. water industry is fragmented, with nearly 50,000 community water systems and 16,000 wastewater treatment systems, many of which are too small to perform necessary repairs, leading to service disruptions [2] - A significant portion of U.S. water infrastructure is nearing the end of its effective service life, necessitating investments for upgrades, prompting large water utility companies to acquire smaller players [2] - California Water Service Group (CWT) is also pursuing strategic acquisitions in high-growth markets, with recent acquisitions adding 1,800 customers [4] Group 3: Market Performance - AWK shares have outperformed the industry, gaining 21.4% in the past six months compared to the industry's 17.9% growth [5]

Core Viewpoint - American Water Works Company, Inc. (AWK) is set to increase its annual revenues by approximately $79.5 million due to new water and wastewater rates approved by the New Jersey Board of Public Utilities, effective September 15, 2024, aimed at recovering over $1.3 billion in infrastructure investment costs [1][2]. Group 1: Rate Hike and Infrastructure Investment - The aging water supply system necessitates regular investments for upgrades and maintenance to ensure long-term growth, with water rate hikes supporting these strategic investments [2]. - AWK plans to invest $3.1 billion in 2024, with a total investment range of $16-$17 billion for the 2024-2028 period and $34-$38 billion for the 2024-2033 period, focusing on infrastructure improvements [3]. - The introduction of the Universal Affordability Tariff aims to provide discounts for income-eligible customers, enhancing affordability [2]. Group 2: Industry Investment Needs - The U.S. Environmental Protection Agency estimates that $625 billion is needed for drinking water and $271 billion for wastewater pipeline maintenance and expansion over the next 20 years [3]. - Other water utilities, such as SJW Group, American States Water Company, and California Water Service Group, are also planning significant capital investments to strengthen their infrastructure [3]. Group 3: Performance and Earnings - AWK shares have increased by 10.9% over the past three months, outperforming the industry growth of 9.4% [6]. - AWK currently holds a Zacks Rank 2 (Buy), indicating positive market sentiment [8].

Core Viewpoint - Wall Street is experiencing volatility due to disappointing economic data, particularly in the manufacturing sector, which has raised concerns about a slowing economy. Defensive stocks in utilities and consumer staples are recommended as safer investment options during this period of uncertainty [1][2][4]. Economic Overview - The manufacturing PMI rose slightly to 47.2 in August from 46.8 in July, indicating continued contraction as it remains below the neutral level of 50 for the fifth consecutive month [2][3]. - The manufacturing sector constitutes 10.3% of the economy, with notable contractions in industries such as machinery, textile mills, and transportation equipment [2]. Market Performance - On the first trading day of September, the Dow dropped 626.15 points (1.5%), the S&P 500 fell 2.1%, and the Nasdaq declined 3.3% [4]. - The Federal Reserve has raised interest rates to a 23-year high, which has contributed to slowing orders and output in factories [4]. Defensive Stocks Recommendations - **American Water Works Company, Inc. (AWK)**: Provides water services to over 14 million customers, with an expected earnings growth rate of 7.4% and a current dividend yield of 2.14% [7][8]. - **NiSource Inc. (NI)**: Delivers natural gas and electricity to nearly 4 million customers, with an expected earnings growth rate of 7.5% and a current dividend yield of 3.21% [10]. - **Evergy, Inc. (EVRG)**: Supplies energy to over 1.7 million customers, with an expected earnings growth rate of 8.8% and a current dividend yield of 4.35% [12]. - **Unilever PLC (UL)**: Engaged in manufacturing consumer goods, with an expected earnings growth rate of 8.2% and a current dividend yield of 2.92% [15]. - **Flowers Foods, Inc. (FLO)**: Focuses on high-quality baked goods, with an expected earnings growth rate of 4.2% and a current dividend yield of 4.13% [17].

Group 1: Inflation Context - Inflation in the United States remains high, above the Federal Reserve's target of below 2%, despite signs of cooling [1] - Investors are seeking assets that can provide protection against inflation [1] Group 2: W.P. Carey (NYSE: WPC) - W.P. Carey is a real estate investment trust (REIT) with a diversified portfolio, including industrial, office, retail, and warehouse properties [2] - Many of its leases are linked to inflation, ensuring a sustainable revenue stream [2] - The company reported a revenue decline to $389.7 million for Q2 2024, down 13.9% from $452.6 million in Q2 2023 [3] - The stock gained almost 8% over the past month but is down over 8% year-to-date, trading at $60 [3] Group 3: American Water Works (NYSE: AWK) - American Water Works is considered an inflation-proof stock due to its focus on water utilities, which have consistent demand and minimal competition [5] - The company’s Q2 2024 revenues grew 4.7% year-over-year to $1.15 billion [6] - AWK was trading at $143, reflecting year-to-date gains of over 7% [6] Group 4: Kroger (NYSE: KR) - Kroger has strong pricing power and inelastic demand for groceries, allowing it to pass costs onto consumers during inflation [8] - The stock is viewed as undervalued due to perceptions of the grocery retail industry as low-margin and highly competitive [8] - Kroger's stock is trading at $53, having gained nearly 2% in the past week and over 16% year-to-date [8]

Core Viewpoint - American Water Works is making significant investments in infrastructure to enhance water quality and service reliability, particularly through the construction of a new groundwater treatment plant and planned capital expenditures over the coming years [1][3]. Group 1: Infrastructure Investment - American Water Works has invested $10.9 million in a new groundwater treatment plant, which is expected to provide high-quality water and mitigate flooding impacts [1][2]. - The U.S. EPA estimates that $896 billion is needed over the next 20 years to maintain and expand drinking water and wastewater services, presenting growth opportunities for water utility operators [3]. - American Water plans to invest $3.1 billion in 2024, with a total investment of $16-$17 billion from 2024-2028 and $34-$38 billion from 2024-2033 [3]. Group 2: Competitor Investments - Essential Utilities plans to invest $1.3-$1.4 billion in 2024 for over 5,000 projects and $7.2 billion from 2024-2028 to enhance water and natural gas systems [4]. - California Water Service intends to invest over $380 million in capital expenditures in 2024 [4]. - Middlesex Water plans to invest $237 million from 2024-2026 to strengthen its water and wastewater infrastructure [4]. Group 3: Dividend Yield and Performance - The current dividend yields for American Water Works and its peers are 2.14% (AWK), 3.34% (WTRG), 2.02% (CWT), and 2.06% (MSEX), all of which exceed the Zacks S&P 500 composite yield of 1.54% [4]. - Over the past six months, American Water has seen an 18.9% increase in share price, outperforming the industry growth of 15.6% [5]. Group 4: Zacks Rank - American Water currently holds a Zacks Rank of 2 (Buy), indicating positive market sentiment [7].