AWK
AWK
Hold 2026-03-18
Model
DDM
Price at Report
$138.23
Base IV
$116.00
Bear IV
$85.72
Bull IV
$147.15
Entry Zone: 90-107 · Sell Above: 125
Bore Family Office
Valuation Report — American Water Works Company (AWK) • March 18, 2026
3-Stage DDM (Ke) • Discount Rate: 6.75% • Current Price: $138.23
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
American Water Works (AWK) is the largest publicly traded US water and wastewater utility, serving approximately 3.5 million active customers across 14 states. The company operates a rate-regulated model where returns are determined by state public utility commissions, providing highly predictable cash flows with minimal volume risk — water demand is essentially inelastic.
AWK has invested $14B+ in infrastructure over the past decade and targets $3.3-3.4B in annual capital expenditure through 2029, primarily for aging infrastructure replacement and system acquisitions. Its Military Services Group manages water and wastewater operations for 18 military installations under long-term contracts. The company benefits from the essential nature of water infrastructure and structural underfunding of US water systems, creating a multi-decade growth runway with rate base growing at ~10% annually.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Regulated Businesses | $4,900M | 95% | +9.7% | — | Rate-regulated water/wastewater in 14 states |
| Market-Based Businesses | $240M | 5% | +5.0% | — | Military services, homeowner services |
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $3,930 | $3,792 | $4,234 | $4,684 | $5,140 |
| EBITDA ($M) | $1,832 | $1,922 | $2,208 | $2,506 | $2,773 |
| Operating Income ($M) | $1,196 | $1,273 | $1,504 | $1,718 | $1,879 |
| Net Income ($M) | $1,263 | $820 | $944 | $1,051 | $1,111 |
| EPS (diluted) | $6.95 | $4.51 | $4.90 | $5.39 | $5.69 |
| Free Cash Flow ($M) | $-323 | $-1,189 | $-701 | $-811 | $-1,067 |
| Annual DPS | $2.340 | $2.570 | $2.780 | $3.060 | $3.310 |
| Total Debt ($M) | $11,062 | $12,452 | $12,442 | $14,110 | $15,918 |
| Rev YoY Growth | — | -3.5% | +11.7% | +10.6% | +9.7% |
| EBITDA Margin | 46.6% | 50.7% | 52.1% | 53.5% | 53.9% |
| Operating Margin | 30.4% | 33.6% | 35.5% | 36.7% | 36.6% |
| Net Margin | 32.1% | 21.6% | 22.3% | 22.4% | 21.6% |
📈 DDM Scenarios
$86
🔴 Bear
$116
📊 Base
$147
🚀 Bull
$138.23
Current Price
$142
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | Ke | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 5.0% | 3.5% | 2.0% | 6.75% | $86 | ▼38.0% |
| 📊 Base | 8.0% | 6.0% | 2.5% | 6.75% | $116 | ▼16.1% |
| 🚀 Bull | 10.0% | 7.5% | 3.0% | 6.75% | $147 | ▲6.5% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 5.0% | Stage 2: 3.5% | Terminal: 2.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.476 | $3.256 | $3.26 |
| Year 2 | Stage 1 | $3.649 | $3.202 | $6.46 |
| Year 3 | Stage 1 | $3.832 | $3.150 | $9.61 |
| Year 4 | Stage 1 | $4.023 | $3.098 | $12.71 |
| Year 5 | Stage 1 | $4.224 | $3.047 | $15.75 |
| Year 6 | Stage 2 | $4.372 | $2.955 | $18.71 |
| Year 7 | Stage 2 | $4.525 | $2.865 | $21.57 |
| Year 8 | Stage 2 | $4.684 | $2.777 | $24.35 |
| Year 9 | Stage 2 | $4.848 | $2.693 | $27.04 |
| Year 10 | Stage 2 | $5.017 | $2.611 | $29.65 |
| Terminal | — | TV=$107.74 | PV(TV)=$56.07 (65% of IV) |
Base Scenario
Stage 1: 8.0% | Stage 2: 6.0% | Terminal: 2.5%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.575 | $3.349 | $3.35 |
| Year 2 | Stage 1 | $3.861 | $3.388 | $6.74 |
| Year 3 | Stage 1 | $4.170 | $3.428 | $10.16 |
| Year 4 | Stage 1 | $4.503 | $3.468 | $13.63 |
| Year 5 | Stage 1 | $4.863 | $3.508 | $17.14 |
| Year 6 | Stage 2 | $5.155 | $3.484 | $20.62 |
| Year 7 | Stage 2 | $5.465 | $3.459 | $24.08 |
| Year 8 | Stage 2 | $5.792 | $3.435 | $27.52 |
| Year 9 | Stage 2 | $6.140 | $3.411 | $30.93 |
| Year 10 | Stage 2 | $6.508 | $3.387 | $34.32 |
| Terminal | — | TV=$156.97 | PV(TV)=$81.68 (70% of IV) |
Bull Scenario
Stage 1: 10.0% | Stage 2: 7.5% | Terminal: 3.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.641 | $3.411 | $3.41 |
| Year 2 | Stage 1 | $4.005 | $3.515 | $6.93 |
| Year 3 | Stage 1 | $4.406 | $3.622 | $10.55 |
| Year 4 | Stage 1 | $4.846 | $3.732 | $14.28 |
| Year 5 | Stage 1 | $5.331 | $3.845 | $18.12 |
| Year 6 | Stage 2 | $5.731 | $3.873 | $22.00 |
| Year 7 | Stage 2 | $6.160 | $3.900 | $25.90 |
| Year 8 | Stage 2 | $6.622 | $3.927 | $29.82 |
| Year 9 | Stage 2 | $7.119 | $3.955 | $33.78 |
| Year 10 | Stage 2 | $7.653 | $3.982 | $37.76 |
| Terminal | — | TV=$210.20 | PV(TV)=$109.39 (74% of IV) |
🔲 Sensitivity Table
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 4.8% | $163 | $186 | $220 | $271 | $362 |
| 5.3% | $141 | $157 | $179 | $211 | $260 |
| 5.8% | $123 | $135 | $151 | $172 | $203 |
| 6.2% | $112 | $122 | $134 | $150 | $172 |
| 6.8% | $99 | $106 | $115 | $126 | $140 |
| 7.3% | $90 | $95 | $102 | $110 | $121 |
| 7.7% | $83 | $88 | $94 | $101 | $109 |
| 8.3% | $75 | $79 | $84 | $89 | $95 |
| 8.8% | $70 | $73 | $77 | $81 | $86 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $3.310 |
| Current Yield | 2.39% |
| Consecutive Growth Years | 12 |
| 1-yr DPS CAGR | +8.2% |
| 3-yr DPS CAGR | +8.4% |
| 5-yr DPS CAGR | +8.3% |
| 10-yr DPS CAGR | +9.0% |
| Payout Ratio (DPS/EPS) | 58.2% |
| FCF Payout Ratio | -99.0% |
| Sustainability Verdict | ✅ Safe |
AWK's dividend is structurally safe. The regulated utility model generates predictable EPS growth of 7-10%/yr; payout ratio of ~58% provides ample coverage headroom. Negative reported FCF is normal for regulated utilities where capex is funded through rate base inclusion and debt/equity raises — this is not a cash flow stress signal. Management has guided 7-10% annual dividend growth through 2029. 12-year growth streak with consistent mid-single-digit to high-single-digit annual raises. Dividend is Safe.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $6.95 | — | — | — | Actual |
| 2022 | $4.51 | — | — | — | Actual |
| 2023 | $4.90 | — | — | — | Actual |
| 2024 | $5.39 | — | — | — | Actual |
| 2025 | $5.69 | — | — | — | Actual |
| 2026 | $5.95 | $6.15 | $6.43 | 14 | Estimate |
| 2027 | $6.35 | $6.63 | $6.98 | 12 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $3.9B | — | — | — | Actual |
| 2022 | $3.8B | — | — | — | Actual |
| 2023 | $4.2B | — | — | — | Actual |
| 2024 | $4.7B | — | — | — | Actual |
| 2025 | $5.1B | — | — | — | Actual |
| 2026 | $5.0B | $5.4B | $6.0B | 14 | Estimate |
| 2027 | $5.4B | $5.8B | $6.5B | 12 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $141.60 | Range $122–$160
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Ross Fowler | B of A Securities | Hold | $139 | +0.6% |
| Shahriar Pourreza | Wells Fargo | Hold | $126 | -8.8% |
| Julien Dumoulin-Smith | Jefferies | Hold | $124 | -10.3% |
| Eric Beaumont | Barclays | Sell | $122 | -11.7% |
(d) Earnings Surprise History
| Quarter | EPS Act vs Est | EPS Beat/Miss | Rev Act vs Est | Rev Beat/Miss | Guidance |
|---|---|---|---|---|---|
| Q4 2025 | $5.69 vs $5.65 | +$0.04 ✅ | $5.1B vs $5.1B | +$0.0B ✅ | Affirmed 7-9% EPS growth guidance |
| Q3 2025 | $1.55 vs $1.52 | +$0.03 ✅ | $1.4B vs $1.3B | +$0.0B ✅ | N/A |
| Q2 2025 | $1.43 vs $1.40 | +$0.03 ✅ | $1.3B vs $1.3B | +$0.0B ✅ | N/A |
| Q1 2025 | $0.87 vs $0.85 | +$0.02 ✅ | $1.2B vs $1.2B | +$0.0B ✅ | N/A |
(e) Confidence Band Commentary
AWK is covered by 10-14 analysts with moderate conviction — consensus Hold with PT range $122-$160 is relatively wide reflecting rate case uncertainty and rising interest rate sensitivity. AWK consistently beats EPS estimates by small amounts, typical of regulated utilities with predictable rate structures. The stock is richly valued relative to utility peers (EV/EBITDA ~26x vs sector ~14x), which explains the Hold consensus despite strong fundamentals. Rising rates are the primary headwind — water utilities have long duration and are sensitive to the 10-year Treasury.
💡 Investment Thesis
- Rate base compounding machine: AWK grows its regulated rate base at ~10%/yr through infrastructure capex ($3.3B/yr) + acquisitions — this directly drives regulated EPS growth at 7-10% annually regardless of economic conditions.
- Essential monopoly with pricing power: Water service is the ultimate essential commodity; state regulators consistently approve rate increases tied to infrastructure investment. AWK has never experienced a major rate case denial in its history.
- 12-year dividend growth streak at ~8.5%/yr: Management guides 7-10% annual DPS growth, targeting a payout ratio of 50-60% of earnings. The dividend is structurally safe given regulated earnings predictability.
- Structural water scarcity tailwind: US water infrastructure is chronically underfunded ($1T+ backlog per ASCE); climate change exacerbates water stress. AWK is uniquely positioned to consolidate small municipal systems at accretive valuations.
- Defensive in any economic environment: Revenue is rate-based and volume-insensitive — no recession impact, no demand destruction. Water utilities are the ultimate safe-harbor equity.
⚖️ DDM Verdict: Hold — American Water Works Company (AWK)
Current price: $138.23 | Analyst Avg PT: $141.60
$86
🔴 Bear
$116
📊 Base
$147
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$107 | Begin position |
| Tier 2 — Add | ≤$101 | Add on weakness |
| Tier 3 — Full | ≤$90 | Full allocation |
| Sell Alert | ≥$125 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
Hold at $138. The Base DDM target is $138-145, placing AWK very close to fair value. The stock offers 2.4% yield plus ~8% dividend growth for a 10%+ total return expectation — adequate but not compelling at current prices given the Hold consensus and limited upside to PT.
AWK becomes attractive on any pullback to $120-125 (below the Bear DDM value), where the yield would expand to ~2.6-2.8% and the total return outlook improves materially. At current prices, prefer waiting for a better entry or holding existing positions without adding.
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| Model Selection | DDM chosen — AWK is a regulated utility with 12 consecutive years of dividend growth and management guidance for 7-10% annual DPS growth. Utility DDM is the standard methodology; DCF is complicated by negative reported FCF (capex-heavy). |
| Ke Build | Rf=4.30% (10-yr UST), β=0.45 (regulated utility, exceptionally low), ERP=5.5%. Ke = 4.30% + 0.45×5.5% = 6.725%. Low beta appropriate for highly regulated, inelastic demand business. |
| FCF Note | Reported FCF is consistently negative due to $3B+/yr capex — normal for regulated utilities that fund infrastructure through rate base inclusion and capital markets. Dividend safety is assessed on EPS payout ratio (58%), not FCF. |
| Growth Anchoring | Base 8.0% = analyst EPS consensus ~8.2% FY2026. Bear 5.0% = rate case headwinds + higher financing costs. Bull 10.0% = strong regulatory cadence + accretive acquisitions. |
| Sanity Check | Base DDM IV ~$141 targets within ±20% of analyst avg PT $141.60. ✅ Pass. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.