Business Overview American Water Works Company, Inc. (AWK) is the largest and most geographically diverse, publicly-traded water and wastewater utility company in the United States. With a rich history dating back to 1886, the company has established itself as an industry leader, providing essential water and wastewater services to over 14 million people across 24 states.
American Water's primary business involves the ownership of regulated utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service, and sale for resale customers. The company's utilities operate in 14 states, serving 3.5 million active customers through its water and wastewater networks. Services provided by the company's utilities are subject to regulation by various state public utility commissions.
American Water was originally incorporated in Delaware in 1936 and has since grown to become the largest publicly-traded water and wastewater utility company in the United States. Over the decades, the company has successfully navigated various challenges, including environmental regulations, infrastructure upgrades, and industry consolidation.
In the early 2000s, American Water underwent a significant transformation following its acquisition by an affiliate of its previous owner. This change brought new leadership and a renewed focus on the company's core water and wastewater business. As part of this strategic shift, the company divested non-core assets and prioritized its regulated utility operations.
Over the past 20 years, American Water has invested billions of dollars to upgrade and replace aging water and wastewater infrastructure across its service areas. This commitment to infrastructure improvement has been a key driver of the company's growth and operational excellence.
Consistent Execution and Financial Discipline American Water has a proven track record of consistent execution and financial discipline. In 2024, the company delivered earnings of $5.39 per share, which was right in line with its expectations. This included an estimated $0.12 per share of favorable weather impact and $0.09 per share of incremental interest income from the sale of its Homeowner Services Group business.
The company's results reflect the clear execution of its strategic plan, which has delivered 8% plus EPS growth in 2024. American Water's regulatory and state teams successfully completed several significant general rate cases during the year, driving the recovery of needed infrastructure investments and ensuring the provision of safe, clean, reliable, and affordable service to its customers.
Robust Capital Investment and Acquisition Strategy American Water continues to invest heavily in its infrastructure to maintain and expand its water and wastewater systems. In 2024, the company invested $3.3 billion, including $2.8 billion in capital expenditures for infrastructure improvements and replacements, and $417 million to fund acquisitions that added approximately 69,500 new customers.
The company's capital investment plan is expected to drive 8% to 9% rate base growth over the long term. American Water plans to invest between $17 billion to $18 billion over the next five years, with $15.5 billion to $16 billion dedicated to infrastructure improvements and replacements in its Regulated Businesses. Additionally, the company expects to invest $1.5 billion to $2 billion in long-term debt financing during 2025 to support its growth initiatives.
Acquisitions are a key component of American Water's growth strategy, with the company targeting a 2% compounded annual growth rate in customers through acquisitions. In 2024, the company closed on 13 acquisitions, adding approximately 69,500 new customers. As of the beginning of 2025, the company had entered into 17 additional agreements with a total aggregate purchase price of $105 million, which are expected to add approximately 24,200 more customers.
Regulatory Landscape and Constructive Outcomes American Water's Regulated Businesses operate in a supportive regulatory environment, with several states having authorized the use of mechanisms that permit rates to be adjusted outside of a general rate case for certain costs and investments, such as infrastructure surcharge mechanisms. In 2024, the company successfully completed seven general rate cases, resulting in $283 million in annualized incremental revenues.
The company has general rate cases currently in progress in four jurisdictions, the most prominent of which is in Missouri, where it is seeking recovery of $1.1 billion in capital investments. American Water is also working with an informal coalition of water and gas utilities in Missouri on a legislative path for future test-year ratemaking, which could further improve the regulatory environment.
Financials and Liquidity American Water maintains a strong financial position, with a total debt to capitalization ratio of 57% as of the end of 2024, well within the company's target of less than 60%. The company is rated A- by S&P with a stable outlook, and Baa1 by Moody's, also with a stable outlook. Both ratings agencies cite the company's strong regulatory and operational diversity, low-risk business, and steady financial performance as key factors in their analyses.
For the fiscal year 2024, American Water reported total revenue of $4.68 billion, net income of $1.05 billion, and operating cash flow of $2.04 billion. The company's free cash flow for the year was negative $963 million, reflecting the significant capital investments made during the period. In the fourth quarter of 2024, revenue reached $1.20 billion, representing a 16.5% increase compared to the same quarter in 2023. Net income for Q4 2024 was $239 million, up 39.8% year-over-year.
The company's financing plan for 2025 to 2029 includes an estimated $2.5 billion in external equity issuances, with no equity planned for 2025. This, along with $1.5 billion to $2 billion in long-term debt financing planned for 2025, will support the company's growth initiatives and maintain its strong balance sheet.
American Water's liquidity position remains robust, with a debt-to-equity ratio of 1.37 as of December 31, 2024. The company held $96 million in cash and had access to a $2.75 billion revolving credit facility, of which $1.79 billion was available at year-end. The current ratio stood at 0.39, while the quick ratio was 0.35.
Affirmation of 2025 Guidance and Long-Term Targets American Water has affirmed its 2025 earnings guidance of $5.65 to $5.75 per share, representing an 8% growth rate compared to its weather-normalized 2024 EPS. This guidance includes $0.10 per share of incremental interest income from the amendment of the Homeowner Services Group note in early 2024. The company also reaffirmed its long-term targets of 7% to 9% EPS and dividend growth, driven by an 8% to 9% rate base growth plan.
American Water expects to achieve consistent EPS growth well within the 7% to 9% range through 2029 and beyond. This consistent guidance and long-term outlook demonstrate the company's ability to execute on its strategic plan and deliver reliable growth for its shareholders.
Business Segments and Market Position American Water operates primarily through two segments: the Regulated Businesses and Other. The Regulated Businesses segment is the company's largest, accounting for 92% of total operating revenues in 2024. This segment includes subsidiaries providing water and wastewater services to customers in 14 states, with 3.55 million active customers.
In 2024, the Regulated Businesses segment reported operating revenues of $4.30 billion, operating income of $1.72 billion, and net income attributable to common shareholders of $1.06 billion. Water service revenues made up 92% of the segment's total operating revenues, with residential customers contributing 55%, commercial customers 21%, and industrial customers 4%.
The Other segment primarily includes the Military Services Group, which provides water and wastewater services on military installations through long-term contracts with the U.S. government. In 2024, this segment reported operating revenues of $388 million, operating income of $48 million, and a net loss attributable to common shareholders of $14 million.
Industry Trends and Market Outlook The water utility industry in the United States is expected to grow at a compound annual growth rate of approximately 7-9% over the next 5-10 years. This growth is primarily driven by the need for significant infrastructure investment, consolidation through acquisitions, and expanding customer bases. American Water's geographic and regulatory diversity, coupled with its essential infrastructure investment needs, uniquely position the company to capitalize on these industry trends.
Conclusion American Water Works Company, Inc. is a leading water and wastewater utility that has consistently delivered on its financial and operational goals. With a robust capital investment plan, a disciplined acquisition strategy, and a supportive regulatory environment, the company is well-positioned to continue its trajectory of reliable growth and shareholder value creation. As a premium regulated utility, American Water offers investors an attractive opportunity to participate in the essential water and wastewater services sector, with a strong track record of execution and a clear path for future growth.