James O. Lykins

J.J.B. Hilliard, W.L. Lyons, LLC

502-588-1799

jlykins@hilliard.com

American Water Works (AWK) management announced FY’12 EPS guidance of $1.90-$2.00, compared to our forecast of $1.99 per share.

We also remind investors that Hurricane Irene and Tropical Storm Lee this past year drove the wettest summer on record in New Jersey, while August was the wettest month on record in the Philadelphia area.

This not only translates to easier comparisons, but any positive weather-driving higher usage could easily propel EPS beyond the high end of FY’12 guidance.

New rates totaling $158.3 million in eight states were put in effect in 2011, and AWK also has rate cases pending in eight states. The stock is trading at 18.1 times and 16.3 times our FY’11 and FY’12 EPS estimates, respectively, a significant discount to the company’s peer group trading at 21.8 times and 18.5 times 2011 and 2012 earnings estimates.

We derive our $35 price target using a multiple of 18 times our FY’12 EPS estimate, which in our view is justified given the company’s growth prospects and historical trading range.

Aqua America Inc. (WTR) reported Q3’11 EPS of $0.30 versus $0.32, matching our forecast and $0.02 below the consensus. Quarterly comparisons are somewhat messy, and due to accounting rules, Q3’10 results are now shown exclusive of the impact of discontinued operations.

Revenues rose 2.0% to $197.3 million, a significant positive as this quarter had the negative impact of horrible weather with Hurricane Irene largely to blame.

 

David E. Parker

RW Baird

813-274-7620

dparker@rwbaird.com

We consider Aqua America a core long-term holding and reiterate our Outperform rating. WTR faces a difficult earnings comparison next year due to the +$0.09 benefit from bonus depreciation in 2011.

Excluding this effect, our estimate assumes earnings growth at the top of the company’s 7-10% long-term earnings range, driven by an increased earnings contribution from the company’s portfolio swap transactions, normal weather, and increased rates in Pennsylvania in 2H12.

American Water Works’ 2012 guidance range is in line with Street expectations; we maintain our Outperform rating. The company’s business plan remains largely unchanged with earnings growth likely driven by: investment in infrastructure, efforts to improve operating margins, reduction of regulatory lag through expanding regulatory mechanisms, execution of portfolio rationalizations, and an improved contribution from the non-regulated business.

AWK reiterated its long-term EPS growth goal of 7-10%. With above-average earnings outlook and the stock trading at a discount to peers, we maintain our Outperform rating.

We maintain our 2012 estimate of $1.92 per share until we have a chance to review the company’s 10K filing to get an update on water usage and growth trends. Consensus stands at $1.91 per share. We remain at the low and of management’s 7-10% long-term earnings range, which may prove conservative.

 

Kevin Cole, CFA

Credit Suisse

212-538-8422

kevin.cole@credit-suisse.com

American Water Works (AWK) issued 2012 EPS guidance of $1.90-$2.00 versus our $1.91 and Street’s $1.94 and expects in line 2011 EPS of ~$1.79 versus our $1.77 and Street’s $1.78. The dividend plan will be revisited in June, although management seemed to indicate that a significant dividend hike is not on the horizon, and the likely response is a measured increase in line with earnings growth.