The most recent earnings update American Water Works Company, Inc.’s (NYSE:AWK) released in December 2018 confirmed that the company benefited from a strong tailwind, leading to a double-digit earnings growth of 33%. Below, I’ve presented key growth figures on how market analysts perceive American Water Works Company’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Market analysts’ consensus outlook for next year seems positive, with earnings growing by a robust 15%. This growth seems to continue into the following year with rates reaching double digit 24% compared to today’s earnings, and finally hitting US$785m by 2022.
Although it is helpful to be aware of the growth year by year relative to today’s level, it may be more valuable to analyze the rate at which the earnings are growing on average every year. The advantage of this method is that it ignores near term flucuations and accounts for the overarching direction of American Water Works Company’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I’ve appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 9.7%. This means, we can assume American Water Works Company will grow its earnings by 9.7% every year for the next couple of years.
For American Water Works Company, there are three fundamental factors you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is AWK worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AWK is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AWK? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.