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4 Stocks to Watch From the Challenging Water Supply Industry
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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. These services 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 - 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 - Free Report) , American States Water Company (AWR - Free Report) and California Water Service Group (CWT - 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 To maintain service reliability and expand coverage, operators regularly replace outdated infrastructure and invest in new pipeline systems.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 Developments Redefining the Water Supply Industry
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.
Consolidation in a Fragmented Industry: The U.S. water industry remains highly fragmented, with more than 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.
Regulatory Pressure & Operational Challenges: The U.S. water supply industry is grappling with increasing regulatory and operational headwinds that are pressuring overall growth. Tightening environmental policies and stricter water quality requirements are driving up compliance expenses, compelling utilities to invest heavily in infrastructure modernization and advanced treatment systems. At the same time, aging water networks, escalating repair and maintenance costs, and exposure to severe weather conditions are intensifying operational difficulties. Rising labor and energy expenses are also weighing on margins, challenging utilities’ ability to ensure dependable service while maintaining financial health.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Utility Water Supply industry is a 13-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #188, which places it in the bottom 23% 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 bearish 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic 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 the Sector and the 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 11.6% compared with the Utility sector’s rally of 19.8%. The Zacks S&P 500 composite has advanced 30.7% in the same time frame.
Price Performance (One year)
Industry Trading at a Premium to the Sector & the 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 24.85X compared with the S&P 500’s 18.48X and the sector’s trailing 12-month EV/EBITDA of 16.67X.
Over the past five years, the water supply industry has traded as high as 44.35X, as low as 12.91X and at the median of 27.39X.
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
Despite challenges in the water and wastewater industry, investors can watch the following stocks from the water space.
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 $14.3 billion (R$70 billion) in the 2024-2029 period to strengthen its water and wastewater infrastructure.
Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings has moved up nearly 7.9%. The current dividend yield of the company is 1.59%, better than the Zacks S&P 500 composite’s yield of 1.41%. The company currently has a Zacks Rank #2 (Buy).
American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to customers. AWR provides long-term water and wastewater services to military bases and continues to pursue new long-term contracts from more military bases. The company aims to invest in the range of $185-$225 million in 2026 to upgrade its infrastructure. It is expected that the company will continue to make fresh investments to upgrade and expand operations.
The Zacks Consensus Estimate for 2026 earnings per share indicates an increase of 3.34% in the past 60 days. The company’s long-term (three to five years) earnings growth rate is 6.93%. The current dividend yield is 2.6%. The company currently has a Zacks Rank #2.
Price and Consensus: AWR
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 $3.7 billion in 2026 to strengthen and expand its existing infrastructure. AWK aims to invest $29 billion during the 2026-2030 period.
The Zacks Consensus Estimate for 2026 earnings per share has moved up nearly 8% year over year. The long-term earnings growth of the company is currently pegged at 7.44%. The current dividend yield of the company is 2.65%. The company currently has a Zacks Rank #3 (Hold).
Price and Consensus: AWK
California Water Service Group: The San Jose, CA-based company, along with its subsidiaries, provides water utility and other related services to customers in the United States. The company continues to expand operations through acquisitions and plans to invest nearly $1.3 billion in the 2026-2027 period to further strengthen its infrastructure, repair and upgrade aging assets.
Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings per share has increased 0.39%. The long-term earnings growth is currently pegged at 10.62%. The current dividend yield of the company is 3.1%. The company currently has a Zacks Rank #3.
Price and Consensus: CWT
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4 Stocks to Watch From the Challenging Water Supply Industry
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. These services 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 - 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 - Free Report) , American States Water Company (AWR - Free Report) and California Water Service Group (CWT - 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 Developments Redefining the Water Supply Industry
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.
Consolidation in a Fragmented Industry: The U.S. water industry remains highly fragmented, with more than 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.
Regulatory Pressure & Operational Challenges: The U.S. water supply industry is grappling with increasing regulatory and operational headwinds that are pressuring overall growth. Tightening environmental policies and stricter water quality requirements are driving up compliance expenses, compelling utilities to invest heavily in infrastructure modernization and advanced treatment systems. At the same time, aging water networks, escalating repair and maintenance costs, and exposure to severe weather conditions are intensifying operational difficulties. Rising labor and energy expenses are also weighing on margins, challenging utilities’ ability to ensure dependable service while maintaining financial health.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Utility Water Supply industry is a 13-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #188, which places it in the bottom 23% 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 bearish 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic 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 the Sector and the 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 11.6% compared with the Utility sector’s rally of 19.8%. The Zacks S&P 500 composite has advanced 30.7% in the same time frame.
Price Performance (One year)
Industry Trading at a Premium to the Sector & the 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 24.85X compared with the S&P 500’s 18.48X and the sector’s trailing 12-month EV/EBITDA of 16.67X.
Over the past five years, the water supply industry has traded as high as 44.35X, as low as 12.91X and at the median of 27.39X.
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
Despite challenges in the water and wastewater industry, investors can watch the following stocks from the water space.
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 $14.3 billion (R$70 billion) in the 2024-2029 period to strengthen its water and wastewater infrastructure.
Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings has moved up nearly 7.9%. The current dividend yield of the company is 1.59%, better than the Zacks S&P 500 composite’s yield of 1.41%. The company currently has a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SBS
American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to customers. AWR provides long-term water and wastewater services to military bases and continues to pursue new long-term contracts from more military bases. The company aims to invest in the range of $185-$225 million in 2026 to upgrade its infrastructure. It is expected that the company will continue to make fresh investments to upgrade and expand operations.
The Zacks Consensus Estimate for 2026 earnings per share indicates an increase of 3.34% in the past 60 days. The company’s long-term (three to five years) earnings growth rate is 6.93%. The current dividend yield is 2.6%. The company currently has a Zacks Rank #2.
Price and Consensus: AWR
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 $3.7 billion in 2026 to strengthen and expand its existing infrastructure. AWK aims to invest $29 billion during the 2026-2030 period.
The Zacks Consensus Estimate for 2026 earnings per share has moved up nearly 8% year over year. The long-term earnings growth of the company is currently pegged at 7.44%. The current dividend yield of the company is 2.65%. The company currently has a Zacks Rank #3 (Hold).
Price and Consensus: AWK
California Water Service Group: The San Jose, CA-based company, along with its subsidiaries, provides water utility and other related services to customers in the United States. The company continues to expand operations through acquisitions and plans to invest nearly $1.3 billion in the 2026-2027 period to further strengthen its infrastructure, repair and upgrade aging assets.
Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings per share has increased 0.39%. The long-term earnings growth is currently pegged at 10.62%. The current dividend yield of the company is 3.1%. The company currently has a Zacks Rank #3.
Price and Consensus: CWT