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American Water Works Co., Inc (AWK - Snapshot Report)
Contrary to what you might believe, the most important commodity is not crude oil, natural gas, silver or even gold - humans can survive without any or all of them.  The one essential commodity that humans cannot live without is potable water.

What is most interesting is that there currently is no way to “trade it” or to take advantage of this integral part of our lives or its scarcity. American Water Works is one of the ways you can invest in water, without having to build a tower in your neighborhood to store it. 

Company Description & Developments
American Water Works Company is a water and wastewater utility company that provides approximately 15 million people with drinking water, wastewater and other water-related services in over 30 states and two Canadian provinces.

There is a good chance you are drinking water that is treated by them…

Water is something we obviously can’t live without; we need clean water to sustain life both directly and for our crops.

In modern society we use fresh, clean water for more than just sustenance. Think about watering your lawn, bathing, plumbing, etc.  According to the US geological survey, the average person uses about 80-100 gallons of water per day. 

Freshwater is available, but very limited in comparison to salt water, especially in certain areas…and not all of it is drinkable. Less than 5% of our total water supply on Earth is fresh water.

While there may seem like plenty of drinking water is available, consider the facts:

  • The average human needs about two quarts per day of drinking water to survive.
  • The World Bank estimates the global population to be about 6.8 Billion. (As of the end of 2010.)
  • We need to consume at least 13.8 billion quarts of water daily, just to survive.  That is the equivalent of 83 million barrels a day. (using an oil comparison) 

According to the CIA, the world consumes over 96 million barrels of oil per day – just a bit higher than the bare minimum drinking water humans on Earth need to survive.

The reality is that it takes about 3,000 liters of water, to produce enough food to satisfy one person’s daily dietary needs (farming, irrigation, etc), not including all the other things we use fresh water for.

Believe it or not, our daily demand of fresh water is more like 121 BILLION BARRELS PER DAY, which dwarfs the amount of daily oil usage. This is a serious commodity.

Financial Profile
American Water is a mid cap company that is trading at about 19 times trailing earnings (P/E).  Looking forward, Zacks Consensus Estimates sees American Water’s P/E dropping to 16, with no change in price from these levels. American Water was just upgraded to a Zacks Rank 1 on Friday which triggered an alert in my system.

They are expected to earn $1.78 in FY2011 according to the Zacks Consensus Estimate. We noticed several analysts upgrading their forward earnings outlooks for FY2012. The company has been showing strong growth over the past 3 years and recently declared a dividend of 23 cents per quarter. (2.9% yield).

In the most recent quarter’s report they showed earnings growth of over 42% year over year. 

Earnings Estimates
Expectations are for American Water to make .33 cents this quarter when they report on January 24th (Zacks Consensus Estimate).  Future earnings estimates have been on the rise over the past months, and all 15 estimates are higher now than they were a year ago, both for the current report and for FY 2012.

American Water surprised analysts to the downside by 9% last quarter.  They reaffirmed their 2011 earnings outlook in November 2011 for FY2011. 

Market Performance & Technicals
American Water is currently trading just $1.00 under its 52 week high of $32.78.  Since June of 2009, AWK has been in a strong growth pattern.  2011 was very good for this low beta stock (beta = .29), it returned almost 27% in capital appreciation. 

American Water has also outpaced the S&P 500 by 23% over the past year, but has been basically flat against the index for the past month and 90 day range.

American Water remains in a solid bullish channel and is firmly above its 50 and 200 day moving averages of $31.16 and $29.68 respectively.   Remember that this is a low volatility stock relative to the S&P 500. 

I think the short term and longer term outlooks for this stock look positive.  Like other utilities, this stock will have a slightly defensive stance compared to the overall market.

 

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

 

 

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