Valuation Concerns and Strategic Challenges Lead to Sell Rating for American Water

Analyst Ross Fowler of Bank of America Securities maintained a Sell rating on American Water (AWK – Research Report), with a price target of $134.00.

Ross Fowler’s rating is based on several factors, primarily focusing on valuation concerns. American Water’s stock is trading at a 35% premium compared to its electric and gas peers, which raises questions about its current valuation. The recent acquisition deal with Nexus Water Group, although significant, does not align with the fair market value (FMV) standards typically seen in public system privatizations, suggesting potential integration and ratemaking challenges.
Additionally, while the acquisition triples American Water’s backlog of signed deals, it only represents 28% of the company’s acquisition guidance midpoint by 2029. This indicates that the deal, despite its size, may not have a substantial impact on the company’s overall strategic goals. The transaction’s expected funding through cash on hand and operations does not alter the company’s capital expenditure or earnings per share guidance, further supporting the Sell rating due to the limited immediate financial impact.