Water utility American Water Works Company Inc. ( AWK - Snapshot Report ) posted strong results in the last four quarters, beating the estimates in that process. Along with a recession-proof business model and long-term expected earnings growth rate of 8.5%, this Zacks #2 Rank (Buy) stock also offers a dividend yield of 2.7%, making it attractive for the growth & income seekers.

Another Strong Quarter

American Water Works reported third quarter earnings per share of 86 cents on November 7, surpassing the Zacks Consensus Estimate of 82 cents by 4.9% and the year-ago earnings of 71 cents by 21.1%.

Revenues of $831.8 million were up 9.3% year over year from $760.9 million, and surpassed the Zacks Consensus Estimate of $826.0 million. Results were driven by favorable weather conditions and business transformation initiatives undertaken by the company.

American Water Works’ planned capital investment of $925 million in 2012 for the modernization of the water infrastructure will allow it to serve its customers better in 2013.

Estimates Inch Higher

The Zacks Consensus Estimate increased by 0.5% to $2.19 per share for 2012, in the last 60 days, as 6 out 13 estimates moved up. This reflects an estimated year-over-year increase of 25.4%. For 2013, the estimates increased by 0.9% to $2.21 per share, in the last 60 days, as 5 out 13 estimates moved up, and only one estimate moved in the opposite direction.

Consistent Dividend

The company is a consistent payer of dividend to its shareholders. The annual dividend rate of $1.00 per share reflects a dividend yield of 2.7% and is higher than the industry average of 1.9%. The utility hiked its quarterly dividend payout by 8.7% to 25 cents in May, marking the 4th dividend increase in as many years.

Valuation

Shares of American Water Works Company currently trade at 16.89x 12-month forward earnings, an 8.8% discount to the peer group average of 18.53x. Its price-to-book ratio of 1.47 is at a 16.9% discount to the peer group average of 1.77.

The company has a trailing 12-month ROE of 8.9%, compared with the peer group average of 10.7%. Even though ROE is lower than its peers, we believe the steady performance of this company will allow it to bridge the gap with its peers.

The hot and dry weather that prevailed during the first nine month of the year benefited this water utility. The positive earnings surprise also pulled the prices upward, with the shares gaining 19.4% over the past twelve months.

Company Description

Voorhees, New Jersey-based American Water Works Company was founded in 1886. This is the largest publicly traded regulated water and wastewater utility holding company in the U.S., catering to approximately 15 million residents across the country and parts of Canada.

With approximately 7,000 employees, the company’s market capitalization is $6.5 billion.