On Thursday, Mizuho Securities adjusted its outlook on American Water (NYSE:AWK) Works Company, Inc. (NYSE:AWK), reducing the price target to $131 from the previous $140, while maintaining a Buy rating on the stock. The adjustment comes in response to a series of developments that have unfolded over recent weeks, impacting the company's valuation.
American Water, a utility company, has experienced a decline in share price following its fourth-quarter earnings release. Despite this, Mizuho's stance on the stock remains positive. The company is actively engaged in numerous rate cases across its service areas and is currently facing challenges with its acquisition efforts in Pennsylvania.
Mizuho believes that American Water has the potential to secure favorable outcomes in its regulatory proceedings within its key markets. The firm's confidence in the company is further supported by the absence of wildfire risks and the strength of its balance sheet. American Water is noted for having minimal equity needs to sustain its five-year capital investment plan.
American Water's shares are trading at a 43% premium compared to its peers in the electric and gas utility sector. This is a decrease from its historical average of a 70% premium. Mizuho's recommendation to buy is based on the expectation that American Water will navigate through its regulatory challenges successfully.
InvestingPro Insights
As American Water Works Company, Inc. (NYSE:AWK) navigates through its regulatory challenges and continues its growth trajectory, recent data from InvestingPro provides further insights into the company's financial health and stock performance. With a market capitalization of $23.0 billion, American Water is a significant player in the utility sector. The company's P/E ratio stands at 24.09, which, while indicative of investor confidence, also suggests a relatively high valuation compared to near-term earnings growth. This aligns with the InvestingPro Tip that AWK is trading at a high P/E ratio relative to near-term earnings growth.
From a stability standpoint, American Water's stock exhibits low price volatility, which may appeal to investors seeking a more stable investment in the utility sector. Additionally, the company has a track record of increasing its dividend for 10 consecutive years, underscoring its commitment to returning value to shareholders. This is further reinforced by the fact that it has maintained dividend payments for 17 consecutive years, as highlighted by another InvestingPro Tip.
Despite trading near its 52-week low, American Water's revenue growth over the last twelve months has been robust at 11.66%, reflecting its ability to expand its top-line figures. Moreover, the company's gross profit margin stands at a healthy 59.38%, indicating a strong ability to manage its cost of goods sold and maintain profitability.
For readers interested in a deeper dive into American Water's performance and for more InvestingPro Tips, including the prediction of profitability for the current year and additional metrics, visit InvestingPro. There are currently 9 additional tips available on InvestingPro to help you make a more informed investment decision. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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