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Zacks Industry Outlook Highlights American Water Works, American States Water, Global Water Resources Consolidated Water

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For Immediate Release

Chicago, IL – April 15, 2024 – Today, Zacks Equity Research discusses American Water Works Co. (AWK - Free Report) , American States Water Co. (AWR - Free Report) , Global Water Resources (GWRS - Free Report) and Consolidated Water Co. Ltd. (CWCO - Free Report) .

Industry: Water Utility


Water utilities work day in and day out to ensure an uninterrupted supply of clean, potable water and reliable sewer services to millions of customers in the United States. These are essential for healthy and hygienic living.

The aging of pipelines is concerning but water utilities continue with their upgrade and maintenance projects to minimize disruptions in operations. American Water Works Co., 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 utilities worth retaining in one’s portfolio are American States Water Co., Global Water Resources and Consolidated Water Co. Ltd.

About the Industry

The Zacks Utility - Water Supply industry includes companies providing drinking water and wastewater services to industrial, commercial and residential customers, and military bases. Water utility operators own nearly 2.2 million miles of pipelines that are getting old. Utilities continuously replace old pipelines and add new ones to expand operations. Utility operators own storage tanks, treatment plants and desalination plants to supply uninterrupted potable water to customers.

The highly fragmented industry creates operational challenges, but increasing efficient water use by individuals and other industries will ensure that precious water is not wasted. A large nation like the United States already has a widespread water infrastructure in place but proper maintenance and upgrade of aging infrastructure becomes crucial for the supply of potable water to millions of consumers.

3 Trends Pivotal for Shaping the Water Supply Industry's Future

Fragmented Water Industry Needs Consolidation: Since the U.S. water utility industry is highly fragmented, upgrading aging assets to provide quality services is the need of the hour. Per the American Society of Civil Engineers (ASCE), at present, 50,000 community water systems and 16,000 wastewater treatment systems in the United States are providing water solutions to customers. Per the ASCE finding, due to the delay in pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States.

The industry creates operational challenges in meeting the requirement for replacement and adding to the aging water and wastewater infrastructure. Large water utility companies continue to acquire small players to ensure the extension of high-quality services to customers and the investment required to upgrade old and acquired assets. Water conservation and initiatives taken by large water operators in educating their consumers on the efficient use of appliances and detecting leakage should help to prevent wastage.

Aging Infrastructure Needs Huge Investments: The water and wastewater infrastructure is aging and gradually nearing the end of its effective service life. Per the findings of the ASCE, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. It is evident that this industry needs more investment for maintenance and upgrade. Per the U.S. Environmental Protection Agency (EPA), an estimated $896 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years.

The massive investment requirement also creates an opportunity for growth among operators in this space. The Bipartisan Infrastructure Law provided $50 billion to EPA to strengthen the drinking water and wastewater systems of the United States. A major portion of the investment will be directed to upgrading water infrastructure serving disadvantaged communities. ASCE gives a C- rating to the U.S. drinking water infrastructure and D+ to the U.S. wastewater infrastructure.

Possibility of Interest Rate Decline is a Tailwind: Utilities, in order to maintain, upgrade and expand operations, approach capital markets for loans. The utilities had been enjoying near-zero interest rates for many years. However, multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, thus adversely impacting utility operators.

However, the Fed has not increased the benchmark rate since July 2023 and indicated the possibility of rate cuts in 2024. The likely drop in interest rates in 2024 would be a positive for utility operators planning large investments in infrastructure upgrades and the addition of renewable sources of energy to produce electricity.

Zacks Industry Rank Indicates Bright 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 #43, which places it in the top 17% of more than 252 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 outperforms 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 potential.

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.

Industry Lags S&P 500 and Sector

The Zacks Utility Water Supply industry has underperformed its sector and the Zacks S&P 500 composite in the past 12 months. The industry has lost 13.1%, wider than the Utility sector’s decline of 9.9%. The Zacks S&P 500 composite has gained 26.1% in the same time frame.

Industry's Current Valuation

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 16.7X compared with the S&P 500’s 15.06X and the sector’s trailing 12-month EV/EBITDA of 14.62X.

Over the past five years, the water supply industry has traded as high as 23.28X, as low as 9.96X and at the median of 16.18X.

4 Water Utility Industry Stocks to Buy Now

We have discussed four stocks from the Zacks Utility- Water Supply industry with strong growth potential, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 $3.1 billion in 2024 to strengthen and expand its existing infrastructure. AWK aims to invest in the range of $16-17 billion during the 2024-2028 time period.

Over the past 90 days, the Zacks Consensus Estimate for 2024 earnings has moved up by nearly 1%. The long-term (three to five years) earnings growth of the company is currently pegged at 8%. The current dividend yield of the company is 2.39%, better than the Zacks S&P composite’s yield of 1.57%. The company delivered an average four-quarter surprise of 6.1%.

American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to customers. AWR is providing long-term water and wastewater services to military bases and continues to pursue new long-term contracts from more military bases. AWR aims to invest in the range of $611.4 million during the 2025-2027 time period.

Over the past 90 days, the Zacks Consensus Estimate for 2024 earnings has moved up by 1.7% The long-term earnings growth of the company is currently pegged at 6.3%. The current dividend yield of the company is 2.49%. The company delivered an average surprise of 3.1% in the last four quarters.

Global Water Resources: This Phoenix, AZ-based company operates and manages 29 water, wastewater and recycled water systems in strategically located communities, principally in metropolitan Phoenix and Tucson, AZ. The company’s long-term goal is to become one of the largest investor-owned operators of integrated water and wastewater utilities in areas of the arid western U.S. where water scarcity management is necessary for long-term economic sustainability and growth.

Over the past 90 days, the Zacks Consensus Estimate for 2024 earnings has moved up by 3.3%. The long-term earnings growth rate for the company is currently pegged at 15%. GWRS’ current dividend yield is 2.43%. The company delivered an average surprise of 28.8% in the last four quarters.

Consolidated Water Co.: This Grand Cayman, Cayman Islands-based company, along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems. Consolidated Water operates 10 water production plants with a capacity of 24.9 million gallons per day in three countries.

Over the past 90 days, the Zacks Consensus Estimate for 2024 earnings has moved up by nearly 4.9%. The long-term earnings growth rate for the company is currently pegged at 8%. The current dividend yield of the company is 1.56%. The company delivered an average surprise of 61.6% in the last four quarters.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit for information about the performance numbers displayed in this press release.


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