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4 Water Supply Stocks to Watch Amid Expanding Industry Opportunities
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The companies under the Zacks Utility - Water Supply industry operate around the clock to ensure a consistent supply of clean drinking water and efficient wastewater services to millions of Americans, playing a vital role in maintaining public health and sanitation. Water consumption typically declines during winter due to reduced outdoor usage, while warmer summer temperatures and increased outdoor activities drive higher demand.
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 Essential Utilities Inc. (WTRG - 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 includes companies providing drinking water and wastewater management services to residential, commercial and industrial customers, as well as military facilities. These utilities oversee an extensive network of nearly 2.2 million miles of aging pipelines, requiring continuous upgrades and replacements to ensure reliable service and expand their reach. Industry participants also operate storage reservoirs, water treatment facilities and desalination plants to meet growing customer needs. Although the industry remains highly fragmented, increasing water-use efficiency among households and businesses promotes sustainable consumption. Given the capital-intensive nature of their operations, water utilities are likely to get adversely impacted by rising interest rates,which increases financing costs and impact margins.
3 Trends Shaping the Future of the Water Supply Industry
Consolidation in a Fragmented Industry: The U.S. water industry remains highly fragmented, comprising more than 50,000 community water systems and 14,000 wastewater treatment facilities. Financial constraints often limit smaller providers’ ability to upgrade infrastructure, contributing to operating inefficiencies and drinking water losses. Although consolidation has progressed slowly, mergers and acquisitions remain essential to improving service quality, lowering operating costs and supporting larger infrastructure investments. Major operators are increasingly acquiring smaller systems to modernize infrastructure and expand their service territories.
Data Centers and Reshoring Boost Water Demand: The U.S. water supply industry’s long-term growth prospects are supported by industrial expansion, infrastructure upgrades and consolidation. Manufacturing reshoring and the growth of semiconductor plants, battery facilities and AI data centers could boost water demand, supporting customer growth, water sales and infrastructure investment.
Aging Infrastructure Requires Investments: The aging U.S. water and wastewater infrastructure requires substantial investment, with water main breaks occurring every few minutes, according to the American Society of Civil Engineers (“ASCE”). The Environmental Protection Agency estimates that drinking water, wastewater and stormwater systems will need $1.25 trillion over the next 20 years for maintenance and upgrades. Although the Bipartisan Infrastructure Law allocates $50 billion to these systems, particularly in underserved communities, a sizable funding gap remains. ASCE’s C- grade for drinking water infrastructure and D+ for wastewater highlight the need for continued investment by regulated water utilities.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Utility Water Supply industry is an eight-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #78, which places it in the top 32% of more than 247 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 two to one.
The industry’s positioning in the top 32% 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. The recent earnings estimate of 82 cents for the water supply industry indicates year-over-year growth of 6.5%.
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 Underperforms S&P 500 but Beats Sector
The Zacks Utility Water Supply industry has underperformed the Zacks S&P 500 composite but outperformed its sector in the past 12 months. The industry has gained 3.2% in contrast to the Zacks Utilities sector’s decline of 0.3%. The Zacks S&P 500 composite has advanced 11.6% in the same time frame.
Price Performance (One year)
Industry Trading at a Premium to Sector and 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 22.25X compared with the S&P 500’s 17.76X and the sector’s trailing 12-month EV/EBITDA of 14.51X.
Over the past five years, the water supply industry has traded as high as 41.59X, as low as 12.52X and at the median of 24.05X.
Water Supply Industry vs. S&P 500 (Past 5 Years)
Water Supply Industry vs. Utility Sector (Past 5 Years)
4 Water Utility Industry Stocks to Watch Now
We have discussed four stocks from the Zacks Utility-Water Supply industry with strong growth potential.
Essential Utilities: The Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. Essential Utilities’ investment appeal rests on infrastructure spending, regulatory cost recovery and acquisitions that expand its customer base and rate base. These drivers support management’s targeted 5-7% annual EPS growth, while consistent dividend increases enhance shareholder returns. The proposed American Water merger offers longer-term growth potential.
Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings moved up 0.45%, while the 2027 estimate has remained unchanged. The long-term (three to five years) earnings growth is currently pegged at 6%. The current dividend yield is 3.37%. Essential Utilities 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: WTRG
American Water Works Company: Camden, NJ-based American Water Works, 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 in the range of $19-$20 billion during the 2026-2030 period.
The Zacks Consensus Estimate for 2026 and 2027 earnings indicates year-over-year growth of 7.8% and 8.58%, respectively. The company’s long-term earnings growth is currently pegged at 8.06%. The current dividend yield of the company is 2.53%. The company currently has a Zacks Rank #3 (Hold).
Price and Consensus: AWK
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 water and wastewater services to military bases under long-term agreements and actively pursues additional military contracts. The company plans to invest $185-$220 million in 2026 to modernize infrastructure, with continued spending expected to support system upgrades and operational expansion.
The Zacks Consensus Estimate for 2026 and 2027 earnings implies a year-over-year increase of 9.2% and 3.26%, respectively. The company’s long-term earnings growth rate is 7.19%. The current dividend yield is 2.56%. It currently has a Zacks Rank #3.
Price and Consensus: AWR
California Water Service Group: The San Jose, CA-based California Water Service, 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 $2 billion in the 2026-2028 period to further strengthen its infrastructure, repair and upgrade aging assets.
The Zacks Consensus Estimate for 2026 and 2027 earnings indicates a year-over-year increase of 19.53% and 6.09%, respectively. The company’s long-term earnings growth rate is 10.99%. The current dividend yield is 2.81%. California Water Service currently has a Zacks Rank #3.
View the Zacks #1 Rank List
Image: Bigstock
4 Water Supply Stocks to Watch Amid Expanding Industry Opportunities
The companies under the Zacks Utility - Water Supply industry operate around the clock to ensure a consistent supply of clean drinking water and efficient wastewater services to millions of Americans, playing a vital role in maintaining public health and sanitation. Water consumption typically declines during winter due to reduced outdoor usage, while warmer summer temperatures and increased outdoor activities drive higher demand.
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 Essential Utilities Inc. (WTRG - 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 includes companies providing drinking water and wastewater management services to residential, commercial and industrial customers, as well as military facilities. These utilities oversee an extensive network of nearly 2.2 million miles of aging pipelines, requiring continuous upgrades and replacements to ensure reliable service and expand their reach. Industry participants also operate storage reservoirs, water treatment facilities and desalination plants to meet growing customer needs. Although the industry remains highly fragmented, increasing water-use efficiency among households and businesses promotes sustainable consumption. Given the capital-intensive nature of their operations, water utilities are likely to get adversely impacted by rising interest rates,which increases financing costs and impact margins.
3 Trends Shaping the Future of the Water Supply Industry
Consolidation in a Fragmented Industry: The U.S. water industry remains highly fragmented, comprising more than 50,000 community water systems and 14,000 wastewater treatment facilities. Financial constraints often limit smaller providers’ ability to upgrade infrastructure, contributing to operating inefficiencies and drinking water losses. Although consolidation has progressed slowly, mergers and acquisitions remain essential to improving service quality, lowering operating costs and supporting larger infrastructure investments. Major operators are increasingly acquiring smaller systems to modernize infrastructure and expand their service territories.
Data Centers and Reshoring Boost Water Demand: The U.S. water supply industry’s long-term growth prospects are supported by industrial expansion, infrastructure upgrades and consolidation. Manufacturing reshoring and the growth of semiconductor plants, battery facilities and AI data centers could boost water demand, supporting customer growth, water sales and infrastructure investment.
Aging Infrastructure Requires Investments: The aging U.S. water and wastewater infrastructure requires substantial investment, with water main breaks occurring every few minutes, according to the American Society of Civil Engineers (“ASCE”). The Environmental Protection Agency estimates that drinking water, wastewater and stormwater systems will need $1.25 trillion over the next 20 years for maintenance and upgrades. Although the Bipartisan Infrastructure Law allocates $50 billion to these systems, particularly in underserved communities, a sizable funding gap remains. ASCE’s C- grade for drinking water infrastructure and D+ for wastewater highlight the need for continued investment by regulated water utilities.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Utility Water Supply industry is an eight-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #78, which places it in the top 32% of more than 247 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 two to one.
The industry’s positioning in the top 32% 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. The recent earnings estimate of 82 cents for the water supply industry indicates year-over-year growth of 6.5%.
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 Underperforms S&P 500 but Beats Sector
The Zacks Utility Water Supply industry has underperformed the Zacks S&P 500 composite but outperformed its sector in the past 12 months. The industry has gained 3.2% in contrast to the Zacks Utilities sector’s decline of 0.3%. The Zacks S&P 500 composite has advanced 11.6% in the same time frame.
Price Performance (One year)
Industry Trading at a Premium to Sector and 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 22.25X compared with the S&P 500’s 17.76X and the sector’s trailing 12-month EV/EBITDA of 14.51X.
Over the past five years, the water supply industry has traded as high as 41.59X, as low as 12.52X and at the median of 24.05X.
Water Supply Industry vs. S&P 500 (Past 5 Years)
Water Supply Industry vs. Utility Sector (Past 5 Years)
4 Water Utility Industry Stocks to Watch Now
We have discussed four stocks from the Zacks Utility-Water Supply industry with strong growth potential.
Essential Utilities: The Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. Essential Utilities’ investment appeal rests on infrastructure spending, regulatory cost recovery and acquisitions that expand its customer base and rate base. These drivers support management’s targeted 5-7% annual EPS growth, while consistent dividend increases enhance shareholder returns. The proposed American Water merger offers longer-term growth potential.
Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings moved up 0.45%, while the 2027 estimate has remained unchanged. The long-term (three to five years) earnings growth is currently pegged at 6%. The current dividend yield is 3.37%. Essential Utilities 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: WTRG
American Water Works Company: Camden, NJ-based American Water Works, 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 in the range of $19-$20 billion during the 2026-2030 period.
The Zacks Consensus Estimate for 2026 and 2027 earnings indicates year-over-year growth of 7.8% and 8.58%, respectively. The company’s long-term earnings growth is currently pegged at 8.06%. The current dividend yield of the company is 2.53%. The company currently has a Zacks Rank #3 (Hold).
Price and Consensus: AWK
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 water and wastewater services to military bases under long-term agreements and actively pursues additional military contracts. The company plans to invest $185-$220 million in 2026 to modernize infrastructure, with continued spending expected to support system upgrades and operational expansion.
The Zacks Consensus Estimate for 2026 and 2027 earnings implies a year-over-year increase of 9.2% and 3.26%, respectively. The company’s long-term earnings growth rate is 7.19%. The current dividend yield is 2.56%. It currently has a Zacks Rank #3.
Price and Consensus: AWR
California Water Service Group: The San Jose, CA-based California Water Service, 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 $2 billion in the 2026-2028 period to further strengthen its infrastructure, repair and upgrade aging assets.
The Zacks Consensus Estimate for 2026 and 2027 earnings indicates a year-over-year increase of 19.53% and 6.09%, respectively. The company’s long-term earnings growth rate is 10.99%. The current dividend yield is 2.81%. California Water Service currently has a Zacks Rank #3.
Price and Consensus: CWT