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Tuesday, Barclays (LON:BARC) initiated coverage on American Water (NYSE: NYSE:AWK) with an Underweight rating and a price target of $138.00. Nicholas Campanella, representing Barclays, cited concerns over the company’s valuation and potential downside to consensus earnings per share (EPS) for the financial year 2026. This aligns with InvestingPro analysis, which indicates the stock is trading above its Fair Value, with a P/E ratio of 27.1x and PEG ratio of 2.7x.
American Water, a water utility company with a market capitalization of $28.7 billion, is expected to grow its rate base by 8-9% and achieve an EPS growth of 7-9%. The company has demonstrated solid performance with 10.6% revenue growth in the last twelve months and maintains a strong dividend track record, having raised dividends for 11 consecutive years. However, Barclays anticipates a downward trend in EPS growth, factoring in approximately 9% dilution to the market cap through the company’s five-year plan and the decrease of HOS income notes. Get deeper insights into AWK’s financial health and growth prospects with a comprehensive Pro Research Report, available exclusively on InvestingPro.
The firm pointed out that, despite American Water’s stock outperforming its XLU peers by 26% since January 2025, there are risks looming on the horizon. One of the key risks highlighted is the potential downside to FY26 EPS expectations due to the expiration of the HOS income notes. Additionally, management is expected to price block equity for 2026, which Barclays believes is becoming more apparent after the stock’s recent relative outperformance.
Barclays also mentioned that while American Water might be seen as a defensive stock in the utilities sector, there are preferable alternatives. The firm recommends Overweight-rated EXC, DUK, CMS, and Equal Weight-rated ATO for investors seeking defensive characteristics within the space.
In other recent news, American Water Works Company, Inc. reported significant developments across various aspects of its operations. The company announced a substantial investment of over $675 million by its subsidiary, Pennsylvania American Water, for 2024 infrastructure enhancements, including water and wastewater system upgrades across 37 counties. This investment is expected to generate over 10,125 jobs and improve service reliability for approximately 2.4 million people. Additionally, UBS maintained a Buy rating for American Water Works with a $156 price target, citing legislative developments in Missouri that could enhance the company’s operational efficiency.
On a different note, Jefferies raised its price target for American Water to $115, while maintaining an Underperform rating due to concerns over the company’s valuation and future financial performance. The firm highlighted a projected earnings per share of $5.70 for fiscal year 2025 and noted a net EPS headwind from the roll-off of a seller note. In leadership changes, Kimberly J. Harris resigned from the Board due to health reasons, with plans for a new Nominating Committee Chair to be announced soon.
The company also finalized a severance agreement with Melanie M. Kennedy, its Executive Vice President and Chief Human Resources Officer, effective March 1, 2025. This agreement includes a cash severance payment and COBRA healthcare coverage. These developments underscore ongoing strategic initiatives and changes within American Water Works as it continues to navigate its market position and regulatory landscape.
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