American Water Works (AWK)

Conclusion

American Water Works provides water and wastewater services to about 3.6 million customers in 14 US states, from its headquarters in Camden, New Jersey. At a price of 149.22 USD on 2026-11-09, the company has a market capitalisation of 29.71 billion USD and an enterprise value of 46.01 billion USD.

The verdict is fair. The price-to-earnings ratio of 26.2x is below its ten-year median of 29.9x, a premium of -12.5%, while EV/EBITDA of 15.9x is above its median of 15.2x, a premium of 4.1%. The fair value band runs from 126.16 to 189.25 USD with a midpoint of 157.70 USD, and the fair value from historical multiples is also 157.70 USD, giving a margin of safety of 5.7%. The DCF value per share and the reverse DCF implied growth are not available. Earnings per share grew 7.9% a year over five years, and the next-year growth estimate is 8.4%.

What holds the case up is operating margin of 37.0%, above its ten-year median of 33.6%, and revenue growth in 9 of 10 comparable years. The dividend yield of 2.27% adds some income. What could break it is free cash flow conversion of -101.9% over the last twelve months, net debt to EBITDA of 5.6x, and an Altman Z-score of 1.06, which sits in the distress zone. Return on invested capital of 5.4% is also below the WACC of 7.1%.

Financial health

Financial health is red, held back by four metrics assessed as bad: current ratio of 0.39, net debt to EBITDA of 5.6x, interest coverage of 2.95x and the Altman Z-score. The quick ratio is 0.26 and debt to equity is 1.38. The Altman model was designed for manufacturers, and this company is a utility, so its distress zone should be read with that in mind. Insolvency risk: low, about 1.5% by the estimate of the Ohlson model over one to two years. That estimate uses figures as of 2025-12-31, so it does not reflect the most recent balance sheet.

Earnings quality

Earnings quality is red, mainly because free cash flow does not cover reported earnings. Free cash flow conversion is -101.9% over the last twelve months and -86.4% over five years, and free cash flow after stock-based compensation is -1.16 billion USD. The accrual ratio is -2.7%. Stock-based compensation is not available in the data. The Piotroski score is 6 of 9. The Beneish M-score reading is not available. The company beat earnings estimates in 3 of the last 8 quarters, with an average surprise of -0.16%. Current-year estimates changed by -0.01% over 90 days, and next-year estimates by 0.4%. The share count has grown 1.4% a year over five years, so there are no net buybacks.

Profitability

Profitability is green, led by operating margin of 37.0% against a ten-year median of 33.6%, and net margin of 21.3% against 20.2%. Gross margin is 41.3% against a median of 57.1%. Margin stability is 6.3%. Return on invested capital is 5.4% against a WACC of 7.1%, a roic minus wacc of -1.7%, which is neutral. The five-year median ROIC is 5.9%. Return on equity is 9.5%. The DuPont split for 2025-12-31 shows a net margin of 21.6%, asset turnover of 0.14 and an equity multiplier of 3.37, so leverage contributes a large share of the return on equity.

Growth

Growth is green. Revenue compound growth is 10.7% over three years, 6.4% over five years and 5.0% over ten years. Earnings per share compound growth is 8.1% over three years, 7.9% over five and 8.0% over ten. Revenue grew in 9 of 10 comparable years. The next-year earnings per share growth estimate is 8.4%. The company has grown steadily over the longer periods, with no single period standing out as a weak spot.

Valuation

Valuation is yellow, with the verdict fair. The price-to-earnings ratio is 26.2x against a ten-year median of 29.9x, a premium of -12.5%. EV/EBITDA is 15.9x against 15.2x, a premium of 4.1%. Price-to-sales is 5.56 against 5.41, a premium of 2.8%, and price-to-book is 2.49 against 2.84, a premium of -12.4%. There is no historical median for price-to-free-cash-flow. The fair value band runs from 126.16 to 189.25 USD with a midpoint of 157.70 USD, and a margin of safety of 5.7% at the price of 149.22 USD. The DCF value per share is not available because the free cash flow base is negative, though the input uses a discount rate of 8.9% and terminal growth of 2.5%. The fair value is an order-of-magnitude estimate built on fixed assumptions, not a price target. The dividend yield is 2.27% and the forward yield 2.38%. Payout on free cash flow is not available, since free cash flow is negative.

Risks

Each weak number carries a specific risk. Interest coverage of 2.95x leaves limited room if borrowing costs rise. Net debt to EBITDA of 5.6x and a current ratio of 0.39 leave a thin buffer for near-term obligations. Negative free cash flow of 1.16 billion USD means that dividends and investment would need outside funding. A return on invested capital below the cost of capital means new investment currently earns less than it costs. Several inputs are not available: stock-based compensation, the Beneish M-score reading, the DCF value per share, the reverse DCF implied growth and the payout on free cash flow. The analysis also lacks a debt maturity schedule and revenue by segment, so it cannot judge refinancing timing or which businesses drive growth.