Stable Price-to-Earnings Ratio
Strong Profit Margins
Good Return on Equity
Manageable Interest Coverage
Strong Leadership Transition
Consistent Financial Performance
Robust Capital Investment Plan
Affirmed EPS Guidance
Acquisition Growth Potential
High Price-to-Sales Ratio
Negative Price-to-Free Cash Flow Ratio
Operating Cash Flow vs. Free Cash Flow
High Debt Levels
Low Liquidity Ratios
Regulatory Challenges
American Water showcases a strong business model with effective leadership and consistent financial performance. Future prospects appear positive with affirmed growth guidance and a solid acquisition pipeline, despite facing some regulatory challenges.
Analysis Date: February 20, 2025
Last Updated: March 11, 2025
Trailing Twelve Months (TTM) values provide a view of the company's performance over the last year.
Benjamin Graham's value investing approach focuses on finding stocks with a significant margin of safety between their intrinsic value and market price.
Intrinsic Value
Estimated fair value based on Graham's formula
$207.51
Current Market Price: $147.24
IV/P Ratio: 1.41x (>1.0 indicates undervalued)
Margin of Safety
Gap between intrinsic value and market price
28.999999999999996%
Graham recommended a minimum of 20-30% margin of safety
Higher values indicate a greater potential discount to fair value
Graham Criteria Checklist
Benjamin Graham's value investing checklist for AWK
Positive earnings (5+ years)
Dividend history (5+ years)
P/E ratio ≤ 20 (27.32)
P/B ratio ≤ 1.5 (2.78)
Current ratio ≥ 2.0 (0.39x)
Long-term debt < Net current assets (-6.51x)
Margin of safety (28.999999999999996%)
AWK does not meet all Graham criteria
Trailing Twelve Months (TTM) values provide a view of the company's performance over the last year.
The gross profit margin of 52.05% and net profit margin of 22.44% indicate effective cost management and a solid ability to convert sales into profits.
A return on equity (ROE) of 10.29% reflects that the company is generating a reasonable return for shareholders, supporting its profitability profile.
While operating cash flow per share is positive at $10.49, the free cash flow per share is negative at -$4.56, indicating potential challenges in cash generation and capital expenditures.
Profitability metrics measure a company's ability to generate earnings relative to its revenue, operating costs, and other relevant metrics. Higher values generally indicate better performance.
Return on Equity (ROE)
Measures how efficiently a company uses its equity to generate profits
10.29%
Higher values indicate better returns for shareholders
TTM (as of 2025-04-16)
Return on Assets (ROA)
Measures how efficiently a company uses its assets to generate profits
0.73%
Higher values indicate better asset utilization
TTM (as of 2025-04-16)
Gross Profit Margin
Percentage of revenue retained after accounting for cost of goods sold
52.05%
Higher values indicate better efficiency in production
TTM (as of 2025-04-16)
Net Profit Margin
Percentage of revenue retained after accounting for all expenses
22.44%
Higher values indicate better overall profitability
TTM (as of 2025-04-16)
An interest coverage ratio of 3.28 suggests that the company can comfortably meet its interest obligations, indicating good financial health.
A debt-to-equity ratio of 1.37 and debt-to-assets ratio of 42.98% indicate significant leverage, which could pose risks in economic downturns.
Current ratio of 0.39 and quick ratio of 0.35 show that the company may struggle to meet its short-term obligations, raising liquidity concerns.
Financial health metrics assess a company's ability to meet its financial obligations and its overall financial stability.
Debt to Equity Ratio
Total debt divided by total equity
1.37x
Lower values indicate less financial leverage and risk
Less than 1.0 is conservative, 1.0-2.0 is moderate, >2.0 indicates high risk
Q4 2024
Current Ratio
Current assets divided by current liabilities
0.39x
Higher values indicate better short-term liquidity
Less than 1.0 is concerning, 1.0-2.0 is adequate, greater than 2.0 is good
Q4 2024
The planned succession from CEO Susan Hardwick to John Griffith reflects a well-thought-out leadership strategy that prioritizes stability and continuity. The leadership team has over 25 years of industry experience, which is key to maintaining American Water's competitive advantage.
American Water reported earnings of $5.39 per share for 2024, showing an 8% growth compared to the prior year. This consistent execution of financial plans builds trust among investors and stakeholders.
The company invested over $3 billion in 2024 primarily to enhance infrastructure and service reliability, which underscores its commitment to maintaining a high-quality service for over 14 million customers.
The company affirmed its 2025 EPS guidance of $5.65 to $5.75 per share, indicating expected growth of 8% compared to 2024. This guidance reflects confidence in their growth strategy and operational execution.
American Water has identified a robust pipeline for acquisitions, with over 24,000 customer connections under agreement and an average expected spend of $300 million to $400 million per year on acquisitions.
There are ongoing regulatory challenges in states like Missouri, where the company is working to improve the regulatory environment to reduce lag times associated with rate cases.