Edward Jones Research Analyst Andy Pusateri says that while American Water Works Company Inc (AWK) currently trades at a discount to its water utility peer group, he believes that gap is closing as the company continues to earn closer to its allowed ROEs. He says American Water Works’ regulatory relationships deteriorated while it was under the ownership of a German utility, but began to improve when it went public again in 2008.
“I think over the past five years since it has been public, the company has done a tremendous job repairing those regulatory relationships, pruning the assets in areas where they didn’t think they could earn a regulated return that was reasonable and adding to their businesses where they felt those regulatory relationships were the strongest,” Pusateri says.
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American Water Works has done a good job of investing in regulated utility assets, and he believes there is additional opportunity for them to continue executing on that goal. Additionally, he thinks the company will continue to earn closer to its allowed ROE.
“And when you look at valuation, I still think American Water still trades at a slight discount to the water utility peer group,” Pusateri says. “It’s the biggest company, and I think as they continue to implement the strategy that they have laid out in a successful manner that that discount to peers will close.”
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