Unveiling American Water Works Co (AWK)'s Value: Is It Really Priced Right? A Comprehensive Guide

Discovering the intrinsic value and potential returns of AWK's stock

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Today, we delve into the financial dynamics of American Water Works Co Inc (AWK, Financial), a leading investor-owned U.S. water and wastewater utility. Despite a daily loss of 2.55% and a 3-month loss of 11%, AWK's Earnings Per Share (EPS) stands at 4.79. The question we seek to answer is: Is the stock modestly undervalued? To get an accurate answer, we'll conduct a comprehensive valuation analysis. So, sit tight and join us on this financial journey.

Company Introduction

American Water Works Co Inc (AWK, Financial) is the largest investor-owned U.S. water and wastewater utility, serving approximately 3.5 million customers across 16 states. The company provides water and wastewater services to residential, commercial, and industrial customers, primarily within regulated markets. AWK's non-regulated business involves water services for military bases, operating under long-term contracts with regulated-like returns. With a market cap of $24.60 billion, the company's stock price stands at $126.34, while the GF Value, an estimate of fair value, is $156.92. Let's delve deeper into the company's value by examining its income breakdown.


Understanding the GF Value

The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. According to our analysis, American Water Works Co Inc (AWK, Financial) appears to be modestly undervalued. The company's estimated fair value stands at $156.92, suggesting that the stock is likely to offer higher long-term returns than its business growth, given its current undervaluation.


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Financial Strength

Understanding a company's financial strength is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide insights into a company's financial health. Unfortunately, American Water Works Co's cash-to-debt ratio of 0.07 ranks lower than 76.29% of 485 companies in the Utilities - Regulated industry, indicating poor financial strength.


Profitability and Growth

Investing in profitable companies is less risky, especially those with a track record of consistent profitability. American Water Works Co has been profitable for 10 years over the past decade, with an operating margin of 35.25%—better than 90.71% of companies in the Utilities - Regulated industry. However, the company's average annual revenue growth of 1.5% ranks lower than 79.63% of companies in the same industry. The 3-year average EBITDA growth is 4.9%, which is better than 52.29% of companies in the industry.


Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to evaluate its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Unfortunately, American Water Works Co's ROIC of 4.14 is lower than its WACC of 7.24.



In conclusion, the stock of American Water Works Co (AWK, Financial) appears to be modestly undervalued. Despite its poor financial condition, the company's profitability is strong, and its growth ranks better than 52.29% of companies in the Utilities - Regulated industry. For more information about American Water Works Co's stock, check out its 30-Year Financials here.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure