American Water Works AWK benefits from the implementation of new rates, a strategic acquisition and merger plan that provides a clear path for revenues and earnings growth. Its systematic capital investment plan strengthens infrastructure, enhances service reliability and boosts long-term growth.
AWK’s Tailwinds
American Water benefits from expanding its operations through strategic acquisitions and mergers. This helps to expand the customer base and support revenue growth. During 2025, it finalized 18 acquisitions, adding nearly 20,900 customers to its operations. The company finalized its purchase of the Nitro wastewater system in West Virginia for $20 million in March 2026.
AWK and Essential Utilities have entered into an all-stock merger, creating a publicly traded water utility valued at approximately $40 billion. The merged entity will operate under the American Water name, provide service to customers across 17 states and maintain long-term contracts with 18 military installations. The merger is expected to close during the first quarter of 2027, subject to required regulatory approvals, and has already secured regulatory clearances from Kentucky and Ohio.
The company gains from the implementation of new rates, supporting its overall financial performance, earnings stability and infrastructure investment recovery. The revised rates, implemented on Jan. 1, 2026, will contribute an additional $89 million to the 2026 annual revenues. The steady growth of the rate base is expected to enhance future earnings, with a projected CAGR of 8-9% over 2024-2035. The company targets long-term earnings and dividend-per-share growth of 7-9%.
The company’s systematic capital investments for infrastructure development and replacement enhance operational efficiency, strengthen service reliability and support long-term growth. AWK plans to invest $3.7 billion in 2026 to strengthen and expand its infrastructure, primarily in its regulated businesses. The company aims to invest $19-$20 billion through 2030 and $46-$48 billion through 2035. This long-term investment plan is expected to change once the company completes the merger with Essential Utilities.
AWK’s Headwinds
Aging water infrastructure requires substantial capital investments for replacement, upgrades and reliable service delivery. The company aims to invest billions of dollars over the long term to maintain the integrity of its systems. Any delayed rate approvals could pressure margins.
American Water operates in a heavily regulated environment, with state Public Utility Commissions and other agencies significantly influencing its operations, financial performance, cash flows and business results. Failure to meet regulatory standards may lead to penalties or enforcement actions.
AWK’s Zacks Rank
American Water currently has a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance of AWK
In the past month, American Water’s shares have rallied 2.9% compared with the no change for the industry.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks in the same sector include American States Water AWR, Consolidated Edison ED and Companhia de saneamento Basico Do Estado De Sao Paulo Sabesp SBS. All the stocks currently carry a Zacks Rank #2 (Buy).
AWR, ED and SBS are projected to deliver long-term (three to five years) earnings growth of 6.93%,6.47% and 3.42%, respectively.
The Zacks Consensus Estimate for 2026 earnings for American States Water, Consolidated Edison and Companhia de saneamento Basico Do Estado De Sao Paulo Sabesp is pegged at $3.71, $6.09 and 97 cents per share, suggesting year-over-year growth of 10.09%,6.84% and 193.94%, respectively.
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Consolidated Edison Inc (ED): Free Stock Analysis Report
Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp (SBS): Free Stock Analysis Report
American Water Works Company, Inc. (AWK): Free Stock Analysis Report
American States Water Company (AWR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).