Core Viewpoint - American Water Works (AWK) is positioned as a strong investment option in the utility sector due to its organic growth, strategic acquisitions, and consistent returns from military contracts [1] Growth Projections - The Zacks Consensus Estimate for AWK's 2025 earnings per share (EPS) is $5.71, reflecting a year-over-year increase of 5.9% [2] - The sales estimate for 2025 is $4.85 billion, indicating a year-over-year increase of 3.6% [2] - AWK's long-term earnings growth rate is projected at 7.4%, with a trailing four-quarter average earnings surprise of 0.8% [2] Debt Position - AWK's total debt to capital ratio stands at 56.05%, which is better than the sector average of 59.23% [3] - The time-to-interest earned ratio is 3.6, indicating the company's strong ability to meet future interest obligations [3] Return on Equity - AWK's return on equity (ROE) is 10.35%, surpassing the sector average of 9.98%, demonstrating efficient capital utilization [4] Dividend History - The company has a consistent history of increasing dividends, with an annual dividend of $3.31 per share and a current dividend yield of 2.35%, outperforming the S&P 500 average of 1.24% [5] Strategic Acquisitions - AWK expanded its customer base through 13 acquisitions in 2024, adding 69,500 customers, with 18 more pending acquisitions expected to add another 37,400 customers [6][8] - The company focuses on acquiring utilities that serve between 5,000 to 50,000 customers [7] Share Price Performance - Year-to-date, AWK's stock has returned 13.4%, compared to the sector's growth of 6.3% [9]

Core Insights - American Water Works' subsidiary, California American Water, has successfully acquired the Mesa Del Sol water system, adding 15 new water connections to its existing customer base of approximately 40,000 connections in Monterey County [1][2] - The acquisition aims to improve water quality for Mesa Del Sol residents by connecting it to the Toro Park system, providing access to enhanced services such as online billing and conservation programs [2] - American Water Works prioritizes acquisitions as a strategy for growth, having completed 13 acquisitions in 2024, adding 69,500 customers, and expects to complete 18 more acquisitions that will add another 37,400 customers [3][4] Company Expansion and Investment - American Water Works plans to invest between $40 billion and $42 billion from 2025 to 2034 in infrastructure repairs, system resiliency, and regulated acquisitions [5] - The company is part of a broader trend where large water utility companies are acquiring smaller rivals to ensure high-quality services and necessary infrastructure upgrades [6][7] Industry Context - The American Society of Civil Engineers reports nearly 50,000 community water systems and 14,000 wastewater treatment systems in the U.S., highlighting the need for consolidation due to many small providers being financially weak [6] - Other companies in the industry, such as Middlesex Water Company and Essential Utilities, are also focusing on acquisitions to expand their customer bases and improve service quality [7][9] Financial Performance - American Water Works' stock has increased by 4.9% over the past six months, slightly trailing the industry's growth of 5.2% [12] - The company currently holds a Zacks Rank of 3 (Hold), indicating a stable outlook in the market [14]

Core Viewpoint - American Water Works Company (AWK) reported strong first-quarter 2025 results, with operating earnings per share (EPS) of $1.05, exceeding estimates and showing a year-over-year improvement of 10.5% from $0.95 [1] Financial Performance - Total revenues for the quarter reached $1.14 billion, surpassing the Zacks Consensus Estimate of $1.02 billion by 11% and increasing 12.9% from $1.01 billion in the previous year [2] - Operating expenses totaled $771 million, up 12.6% from $685 million a year ago, primarily due to increased operating and maintenance costs [4] - Operating income was reported at $371 million, reflecting a 13.8% increase from $326 million in the prior year [4] Segment Performance - Net revenues from regulated businesses were $1.04 billion, marking a 13% year-over-year increase [3] - Other net revenues amounted to $93 million, up 12% year over year [3] Growth Initiatives - The company added 2,150 customers through three completed acquisitions as of April 30, 2025, with 18 pending acquisitions expected to add 37,400 customers [5] - New rates effective January 1, 2025, are projected to increase revenues by $161 million for the full year, with potential additional revenue of $384 million from pending rate cases [5] Financial Position - Cash and cash equivalents stood at $114 million as of March 31, 2025, compared to $96 million at the end of 2024 [6] - Total long-term debt increased to $13.32 billion, up 6.4% from $12.51 billion at the end of 2024 [6] - Cash flow from operating activities was $331 million, down from $382 million in the same period last year [6] Long-Term Guidance - AWK reiterated its 2025 EPS guidance of $5.65-$5.75, with a Zacks Consensus Estimate of $5.72 [7] - The company aims for long-term earnings and dividend growth in the range of 7-9% and plans to invest approximately $3.3 billion in 2025 [7] - Capital expenditure is projected to be between $17-$18 billion for 2025-2029 and $40-$42 billion for 2025-2034 [8]

Financial Data and Key Metrics Changes - Earnings per share (EPS) for Q1 2025 were $1.05, an increase of nearly 11% compared to $0.95 in Q1 2024, affirming the company's full-year EPS guidance of 8% growth [7][12] - Consolidated reported earnings were $1.50 per share, up $0.10 per share versus the same period in 2024, with revenues higher by $0.44 per share due to authorized rate increases and acquisitions [13][14] - Operating costs increased by $0.15 per share, primarily due to employee-related costs and acquisition-related expenses [14] Business Line Data and Key Metrics Changes - The company achieved a constructive settlement in the general rate case in Missouri, with an annualized revenue increase of $63 million expected [15] - In Virginia, a settlement approved a $15 million annualized increase in water and wastewater revenues [15] Market Data and Key Metrics Changes - The company continues to expect to grow its dividend at 7% to 9% per year, in line with its EPS growth target [11] - The total debt to capital ratio was 58%, within the target of less than 60%, with strong credit ratings affirmed by S&P and Moody's [21] Company Strategy and Development Direction - The company aims for long-term earnings and dividend growth of 7% to 9%, driven by a capital investment program targeting approximately $3.3 billion in 2025 [10][22] - The company is focused on infrastructure investments, particularly in PFAS remediation and lead service line replacement, while maintaining a strong regulatory and operational execution [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to execute financial and operational plans, with no expected material impact from recent tariff-related announcements [20] - The company highlighted the need for significant investments in U.S. water infrastructure, estimating a total of $625 billion over the next twenty years [29] Other Important Information - The Board approved an increase in the quarterly cash dividend from $0.765 to $0.825 per share, marking an 8.2% increase [11] - The company is well-positioned for growth through acquisitions, with approximately 37,000 customer connections under agreement [26] Q&A Session Summary Question: Thoughts on pulling forward 2026 equity issuance - Management stated there are no plans to pull forward equity issuance and will evaluate the market as needed [37] Question: Acquisition outlook under potential recession - Management expects a continuous flow of acquisition opportunities, potentially driven by recession or reduced federal funding [38] Question: Update on California rate case - Management did not disclose the percentage increase for the California rate case and confirmed a separate proceeding for cost of capital [43][44] Question: Update on California desalination project - Management confirmed that the last major permit approval was received, and they expect to break ground on the desalination project this year [49] Question: Legislative progress and opportunities - Management did not quantify the opportunities from legislative changes but noted they would help earned returns in each state [56]

Financial Data and Key Metrics Changes - Earnings per share for Q1 2025 were $1.05, an increase of nearly 11% compared to $0.95 in Q1 2024 [7] - Consolidated reported earnings were $1.5 per share, up $0.10 per share versus the same period in 2024 [13] - Revenues increased by $0.44 per share, primarily due to authorized rate increases and organic customer growth [13] Business Line Data and Key Metrics Changes - Operating costs increased by $0.15 per share, driven by employee-related costs and acquisitions [14] - Depreciation increased by $0.11 per share and financing costs increased by $0.10 per share, both as expected to support investment growth [14] Market Data and Key Metrics Changes - The company achieved an annualized revenue increase of $63 million in Missouri, with new rates expected to take effect on May 31, 2025 [15] - In Virginia, an annualized increase of $15 million in water and wastewater revenues was approved [16] Company Strategy and Development Direction - The company affirmed long-term targets for earnings and dividend growth at 7% to 9%, driven by 8% to 9% rate base growth [10] - The Board approved an increase in the quarterly cash dividend from $0.765 to $0.825, an 8.2% increase [11] - The company is focused on infrastructure investments and acquisitions to support growth, with a capital investment goal of approximately $3.3 billion in 2025 [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2025 EPS guidance, representing 8% annual growth [20] - The company noted that recent tariff-related announcements are not expected to materially impact 2025 plans or financial results [21] - The management highlighted the need for significant investments in U.S. water infrastructure, estimating a total need of $625 billion over the next twenty years [30] Other Important Information - The company is well-positioned for growth through acquisitions, with about 37,000 customer connections under agreement [28] - The American Society of Civil Engineers rated the nation's drinking water systems a C- and wastewater systems a D+, indicating a dire need for infrastructure investment [30] Q&A Session Summary Question: Thoughts on pulling forward 2026 equity issuance - The company has no plans to pull forward equity issuance and will issue equity when needed [39] Question: Acquisition outlook under potential recession - The company expects a continuous flow of acquisition opportunities, potentially driven by recession or reduced federal funding [40] Question: Update on California desalination project - The company expects to break ground on the desalination project this year, which is separate from the rate case [52] Question: Legislative progress and opportunities - The company has not quantified the opportunities from legislative changes but noted they will help earned returns [61]

Core Insights - American Water Works (AWK) reported quarterly earnings of $1.05 per share, exceeding the Zacks Consensus Estimate of $1.04 per share, and up from $0.95 per share a year ago, representing an earnings surprise of 0.96% [1] - The company posted revenues of $1.14 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 11.01%, compared to $1.01 billion in the same quarter last year [2] - American Water Works shares have increased by approximately 17.2% since the beginning of the year, contrasting with a decline of -5.5% in the S&P 500 [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.49 on revenues of $1.15 billion, and for the current fiscal year, it is $5.72 on revenues of $4.76 billion [7] - The estimate revisions trend for American Water Works is favorable, leading to a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [6] Industry Context - The Utility - Water Supply industry is currently ranked in the top 33% of over 250 Zacks industries, suggesting that stocks in the top 50% of Zacks-ranked industries outperform those in the bottom 50% by more than 2 to 1 [8] - California Water Service Group (CWT), another company in the same industry, is expected to report a significant decline in earnings, with a forecast of $0.16 per share, representing a year-over-year change of -86.8% [9]

Financial Performance & Guidance - The company reported Q1 2025 EPS of $1.05, driven by higher revenue on increased rate base and 2024 rate case outcomes[11] - The company is affirming its 2025 EPS guidance of $5.65-$5.75, representing 8% EPS growth at the midpoint over weather-normalized 2024 EPS of $5.27[14, 33] - The company successfully executed an $800 million long-term note offering in February with an annual interest rate of 5.250%, due in 2035[11, 56] - The company projects an annual 2025 cash dividend per share of $3.2475, with a total dividend payout ratio of 58%[19] Capital Investments & Rate Base - The company invested $518 million in infrastructure improvements and acquisitions in Q1 2025[11, 38] - The company estimates its rate base to be $22.4 billion as of March 31, 2025[38, 60] - The company plans to invest $36-$37 billion in its systems over the next ten years (2025-2034)[48] Regulatory & Legislative Updates - The company announced a dividend increase of 8.2% in April, aligning with its long-term target[11, 15] - The company has new rates effective in Illinois, Tennessee, Virginia, and California, and a constructive settlement filed in the Missouri rate case, reflecting an annualized revenue increase of $63 million compared to the revised request of $107 million[11, 26] - The company completed rate cases that will add $1 million in additional authorized revenue in Tennessee and $15 million in Virginia[27] Acquisitions & Growth - The company has approximately 37,400 customer connections under agreement across 18 acquisitions in 6 states, with a total value of $162 million[41] - The company closed 3 acquisitions in 3 states with approximately 2,150 customer connections[41, 69] - The company has an acquisition pipeline of more than 1.5 million connections[42, 48]

Earnings Performance - First quarter 2025 earnings per share were $1.05, an increase of 10.5% compared to $0.95 per share in the same quarter of 2024[1][4][5] - The company affirms its 2025 earnings per share guidance range of $5.65 to $5.75, which includes approximately $0.10 per share of incremental interest income[3][4] - Net income attributable to common shareholders for Q1 2025 was $205 million, compared to $185 million in Q1 2024, reflecting a year-over-year increase of 10.8%[21] Dividends - A quarterly cash dividend of $0.8275 per share was announced, representing an increase of 8.2%[4][12] Revenue and Income - The Regulated Businesses' net income for Q1 2025 was $201 million, up from $185 million in Q1 2024, with operating revenues increasing by $121 million[7][5] - Operating revenues for Q1 2025 increased to $1,142 million, up from $1,011 million in Q1 2024, representing a growth of 12.9%[21] Expenses - Operating expenses increased by $78 million in Q1 2025 compared to the same period in 2024, primarily due to higher employee-related costs and depreciation expenses[9][10] - Total operating expenses for Q1 2025 were $771 million, an increase from $685 million in Q1 2024, which is a rise of 12.6%[21] Capital Investment - The company invested $518 million in capital projects during the first three months of 2025, with a total planned investment of approximately $3.3 billion for the year[6] - The company successfully issued $800 million of 5.250% senior notes due 2035 to support its capital investment plan[11] Interest Income - Incremental interest income for Q1 2025 was $0.03 per share, compared to $0.02 per share in Q1 2024, due to an amendment to the secured seller note[5] Regulatory Matters - The company is pursuing general rate cases in three jurisdictions and has filed for an infrastructure surcharge in one jurisdiction, reflecting a total annualized revenue request of $100 million[8] - The company has been authorized additional annualized revenues of $161 million since January 1, 2025, with $138 million from general rate cases[8] Balance Sheet - The company's total assets as of March 31, 2025, were $33,156 million, compared to $32,830 million at the end of 2024, marking a growth of 1.0%[22] - Long-term debt increased to $13,318 million as of March 31, 2025, up from $12,518 million at the end of 2024, representing an increase of 6.4%[23] - Current liabilities decreased to $2,447 million as of March 31, 2025, down from $3,150 million at the end of 2024, a reduction of 22.3%[23] - Cash and cash equivalents rose to $114 million as of March 31, 2025, compared to $96 million at the end of 2024, reflecting an increase of 18.8%[22] Tax Provision - The company reported a provision for income taxes of $65 million for Q1 2025, compared to $57 million in Q1 2024, which is an increase of 14.0%[21] Regulatory Assets - Regulatory assets totaled $1,162 million as of March 31, 2025, slightly up from $1,150 million at the end of 2024, indicating a growth of 1.0%[22]

Financial Performance - Operating revenues for Q1 2025 increased to $1,142 million, up 12.9% from $1,011 million in Q1 2024[21] - Net income attributable to common shareholders for Q1 2025 was $205 million, representing a 10.8% increase from $185 million in Q1 2024[23] - Basic and diluted earnings per share for Q1 2025 were both $1.05, compared to $0.95 in Q1 2024, reflecting a 10.5% increase[21] - Comprehensive income attributable to common shareholders for Q1 2025 was $195 million, down from $203 million in Q1 2024, a decrease of 3.9%[23] - For the three months ended March 31, 2025, net income attributable to common shareholders was $205 million, compared to $185 million in 2024[125] Assets and Liabilities - Total assets as of March 31, 2025, were $33,156 million, up from $32,830 million as of December 31, 2024[20] - Long-term debt increased to $13,318 million as of March 31, 2025, compared to $12,518 million at the end of 2024, marking an increase of 6.4%[20] - Total current liabilities decreased to $2,447 million from $3,150 million at the end of 2024, a reduction of 22.3%[20] - Cash and cash equivalents increased to $157 million as of March 31, 2025, compared to $626 million at the end of Q1 2024[25] - Cash and cash equivalents decreased from $584 million in Q1 2024 to $114 million in Q1 2025, while restricted funds decreased from $42 million to $18 million[35] Capital Expenditures and Investments - Capital expenditures for Q1 2025 were $548 million, down from $609 million in Q1 2024, a decrease of 10.0%[25] - The Company plans to invest approximately $3.3 billion in growth strategies in 2025, with $518 million already invested in the first three months of 2025[158] - The Company reported a capital investment of $515 million in the Regulated Businesses for infrastructure improvements and replacements during the first quarter of 2025[160] Revenue Growth and Rate Cases - The Company expects a total of $138 million in annualized incremental revenues from general rate case authorizations effective in 2025, including $105 million from Illinois and $17 million from California[40][44] - The Virginia subsidiary's general rate case approved a $15 million annualized increase in water and wastewater revenues, driven by over $110 million in capital investments[41] - The Tennessee subsidiary received approval for a $1 million increase in annualized revenues, based on $173 million in capital investments[42] - The Missouri subsidiary's general rate case requests approximately $107 million in annualized incremental revenues, driven by $1.1 billion in capital investments[47] - The Company anticipates $23 million in annualized incremental revenues from infrastructure surcharge authorizations effective in 2025[49] Cash Flow and Financing - The Company reported net cash provided by operating activities of $331 million for Q1 2025, compared to $382 million in Q1 2024[25] - Proceeds from long-term debt for the three months ended March 31, 2025, were $810 million, a decrease from $1.391 billion in the same period of 2024[207][208] - The Company made sinking fund payments or repaid $531 million in aggregate principal amount of outstanding long-term debt during the three months ended March 31, 2025, with a weighted average interest rate of 3.41%[66] Legal and Regulatory Matters - The Company recorded a charge to earnings of $5.0 million related to a class action settlement, with an estimated maximum liability of $5 million[88] - As of March 31, 2025, the Company has accrued approximately $17 million of probable loss contingencies related to legal actions[83] - TAWC is currently engaged in a class action lawsuit with Tennessee Plaintiffs, with breach of contract claims pending[91] - The Public Service Commission of West Virginia initiated a general investigation into the water main break and natural gas outages, focusing on maintenance practices of both WVAWC and Mountaineer Gas[103] Miscellaneous - The Company is evaluating the impact of new accounting standards on its consolidated financial statements, including income tax disclosures and income statement disaggregation[32] - The effective income tax rate for the three months ended March 31, 2025, was 24.1%, an increase from 23.6% in the same period of 2024[79] - The Company has a CAMT credit carryforward of $132 million as of March 31, 2025, due to the Inflation Reduction Act of 2022[80] - The Company believes that the claims against WVAWC in the class action lawsuits are without merit and continues to defend itself vigorously[105]

Economic Outlook - The risk of a U.S. recession has increased, with estimates for a recession in 2025 or within the next year ranging from 40% to 60% according to various Wall Street firms and economists [3][4][21] - Goldman Sachs raised its one-year recession-risk probability to 45% from 35%, while JPMorgan set the odds at 60% [3][4] Stock Performance During Recessions - Defensive stocks, which typically pay dividends, are expected to perform better during economic downturns [5] - Categories of stocks that tend to hold up well include consumer staples, utilities, healthcare, and discount retailers [7][8] Historical Context - The Great Recession lasted from December 2007 to May 2009, with the S&P 500 index dropping 35.6% during this period [10] - Stocks that performed well during the Great Recession include Netflix, iShares Gold Trust ETF, J&J Snack Foods, Walmart, and McDonald's, with Netflix showing a return of 70.7% [12][15] Specific Stock Insights - Gold mining stocks and ETFs, such as Newmont and iShares Gold Trust, are seen as potential safe havens during recessions [17] - "Small indulgence stocks," like Netflix and Hershey, may see continued consumer spending even in downturns [18] - Utility stocks, such as American Water Works and NextEra Energy, have shown strong long-term performance, challenging the notion that they are merely "widow and orphan stocks" [19] Investment Strategy - Investors are advised to review their stock portfolios to enhance recession resistance while remaining invested in the market [21][22] - Long-term investors should avoid drastic changes to their portfolios, as timing the market can be challenging [23]