The companies under the Zacks Utility - Water Supply industry operate continuously to deliver a steady supply of clean, potable water and dependable sewer services to millions across the United States, services that are vital for maintaining public health and hygiene. Traditionally, water demand tends to dip during the winter months, as colder weather limits outdoor usage. In the spring, demand remains moderate, influenced by milder temperatures and gradually increasing outdoor activities.

The aging of pipelines is concerning, but water utilities continue with their upgrade and maintenance projects to minimize disruptions in operations. American Water Works Company (AWK Quick QuoteAWK - Free Report) , with its widespread operations, provides services to domestic customers and military bases and offers an excellent opportunity to stay invested in the water utility space. Other water utilities worth adding to your portfolio are Companhia de Saneamento Basico do Estado de Sao Paulo (SBS Quick QuoteSBS - Free Report) , Middlesex Water Company (MSEX Quick QuoteMSEX - Free Report) and Artesian Resources (ARTNA Quick QuoteARTNA - Free Report) .

About the Utility-Water Supply Industry

The Zacks Utility - Water Supply industry comprises companies that deliver drinking water and wastewater services to residential, commercial, industrial customers, and military installations. Water utilities manage an extensive network of nearly 2.2 million miles of aging pipelines. To maintain service reliability and expand coverage, operators regularly replace outdated infrastructure and invest in new pipeline systems. Operators also own and operate storage tanks, treatment facilities, and desalination plants to meet customer demand. Despite the industry's fragmented nature, improved water efficiency across households and industries supports more sustainable usage. As capital-intensive businesses, water utilities stand to benefit from falling interest rates, which lower the cost of capital and support ongoing infrastructure investments.

Three Trends Shaping the Future of the Water Supply Industry

Falling Interest Rates Support Long-Term Investment: Water utilities, which rely heavily on borrowing to finance infrastructure upgrades and expansion, are poised to benefit from interest rate cuts. After several rate hikes brought the benchmark rate to 5.25%-5.50%, the Federal Reserve has now reduced it by 100 basis points to 4.25%-4.50%. This easing of rates lowers capital costs, providing a financial tailwind for utilities planning large-scale infrastructure projects. Interest rates are expected to drop further in the second half of 2025, which will further reduce capital servicing expenses and boost the performance of these capital-intensive water utilities.

Consolidation in a Fragmented Industry: The U.S. water industry remains highly fragmented, with over 50,000 community water systems and 14,000 wastewater treatment systems. Many smaller utilities lack the financial resources to upgrade aging infrastructure, leading to operational inefficiencies and water loss. Consolidation through mergers and acquisitions — though progressing slowly — is critical for improving service quality, reducing costs, and enabling broader infrastructure investment. Larger players are increasingly acquiring smaller systems to drive modernization and expand service reach.

Aging Infrastructure Requires Investments: The U.S. water and wastewater infrastructure is deteriorating, with water main breaks occurring every two minutes, according to the American Society of Civil Engineers (ASCE). The Environmental Protection Agency estimates that $1.25 trillion in investments will be needed over the next 20 years to maintain and expand water services. The Bipartisan Infrastructure Law has committed $50 billion toward improving these systems, especially in underserved communities. ASCE currently rates U.S. drinking water infrastructure at C- and wastewater systems at D+, underscoring the urgent need for upgrades. The regulated water utilities are making investments to upgrade and maintain infrastructure.

 

Zacks Industry Rank Indicates Bright Prospects

The Zacks Utility Water Supply industry is an 13-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #46, which places it in the top 19% of more than 244 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
 

Water Supply Industry Lags Sector and S&P 500

The Zacks Utility Water Supply industry has underperformed the Zacks S&P 500 composite and its sector in the past 12 months. The industry has gained 11.1% compared with the Utility sector’s rally of 11.6%. The Zacks S&P 500 composite has advanced 11.4% in the same time frame.

Price Performance (One year)

 

Industry Trading at a Discount to Sector & S&P 500

On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing water utility stocks, the industry is currently trading at 11.27X compared with the S&P 500’s 16.85X and the sector’s trailing 12-month EV/EBITDA of 15.09X.

Over the past five years, the water supply industry has traded as high as 25.7X, as low as 9.19X and at the median of 17.20X.

Water Supply Industry vs. S&P 500 (Past 5 Years)

Water Supply Industry vs. Utility Sector (Past 5 Years)

 

Water Utility Industry Stocks to Watch Now

Below, we have discussed four stocks from the Zacks Utility- Water Supply industry with strong growth potential. Two stocks sport a Zacks Rank #1 (Strong Buy) each, one carries a Zacks Rank #2 (Buy), and another has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Companhia de Saneamento Basico do Estado de Sao Paulo: Sao Paulo, Brazil-based SABESP supplies treated water and sewage services to residential, commercial and industrial private customers. The company plans to invest $10.6 billion (R$60 billion) in the 2024-2029 period to strengthen its water and wastewater infrastructure.

Over the past 60 days, the Zacks Consensus Estimate for 2025 earnings has moved up by nearly 7.9%. The current dividend yield of the company is 1.88%, better than the Zacks S&P 500 composite’s yield of 1.57%. The company delivered an average four-quarter surprise of 30.8%. The company currently sports a Zacks Rank #1.

 

Price and Consensus: SBS

Artesian Resources Corporation: Newark, DE-based Artesian Resources provides water, wastewater, and other services in Delaware, Maryland, and Pennsylvania. The company plans to invest $46.4 million in 2025 to strengthen its infrastructure. 

Over the past 60 days, the Zacks Consensus Estimate for 2025 earnings has moved up by 8%. The MSEX stock reported an average earnings surprise of 11.02% in the last four quarters. The current dividend yield of the company is 2.3%. Artesian Resources currently sports a Zacks Rank #1.

Price and Consensus: ARTNA

Middlesex Water Company: Iselin, NJ-based Middlesex Water, along with its subsidiaries, provides water and wastewater services to its customers. The company is also investing in strengthening its operations.

Over the past 60 days, the Zacks Consensus Estimate for 2025 earnings has moved up by 1.2%. The MSEX stock reported an average earnings surprise of 11.02% in the last four quarters. The current dividend yield of the company is 2.3%. Middlesex Water currently has a Zacks Rank #2. The long-term (three to five years) earnings growth of the company is currently pegged at 6.1%.

Price and Consensus: MSEX

American Water Works Company: Camden, NJ-based American Water, along with its subsidiaries, provides water and wastewater services to millions of Americans. The company continues to expand operations through acquisitions and organic means. American Water Works plans to invest $3.3 billion in 2025 to strengthen and expand its existing infrastructure. AWK aims to invest in the range of $17-19 billion during the 2025-2029 period.

Over the past 60 days, the Zacks Consensus Estimate for 2025 earnings has moved up by nearly 6.14%. The long-term earnings growth of the company is currently pegged at 8%. The current dividend yield of the company is 2.08%. The company delivered an average four-quarter surprise of 0.8%. The company currently has a Zacks Rank #3.

Price and Consensus: AWK