Stock Analysis | American Water Works Outlook - A Stock Facing Technical Headwinds

Market Snapshot

Takeaway: American Water Works (AWK) is currently trading with a recent price decline of -1.78%, and with a technical score of 3.08, our internal diagnostic models suggest it is best to avoid this stock at the moment.

News Highlights

Recent news affecting the broader water and infrastructure sector includes:

• India's water strike on Pakistan could have unintended geopolitical ripple effects, especially given China's lack of cooperation on transboundary rivers. This could raise global awareness about water infrastructure investments.
• U.S. changes to the COVID-19 vaccine policy may influence public health funding and government spending priorities, which could indirectly affect utility investments like water infrastructure.
• Water supply disruptions in Delhi from May 31 to June 1 underscore the fragility of public water systems and the potential for increased investment in private water utilities.

Analyst Views & Fundamentals

Analysts remain divided on AWK, with 3 out of 4 recent ratings being Neutral and 1 rating as Strong Buy. The simple average rating score is 3.50, while the performance-weighted rating is 2.23, showing some dispersion and caution in expectations.

These scores are aligned with the recent price trend of -1.78%, which reflects the bearish sentiment from the market. Here are the key fundamental values from our models:

• Total operating revenue (YoY growth rate): 11.94% (score: 3.27)
• EV/EBIT: 55.14 (score: 3.27)
• Gross Profit Margin (GPM): 62.38% (score: 3.27)
• GMAR (Gross Margin to Asset Ratio): 62.38% (score: 3.27)
• Interest coverage ratio: 3.57 (score: 3.27)
• Cost of sales ratio: 39.21% (score: 3.27)

Money-Flow Trends

Our proprietary fund-flow analysis reveals that AWK is seeing positive overall inflow of 50.87%, with large and extra-large investors showing positive trends. However, medium and small investors are showing negative trends, suggesting a divergence in sentiment between institutional and retail investors.

Key Technical Signals

Technically, AWK is in a weak state, with bearish signals dominating. Here are the latest internal diagnostic scores (0-10) for key indicators over the last 5 days:

• MACD Death Cross: 2.55 — a strong bearish signal.
• Inverted Hammer: 1.24 — another bearish candlestick pattern.
• WR Oversold: 6.42 — a weaker bullish signal.
• Dividend Payable Date: 1.84 — historically weak for price movement.
• Bullish Engulfing: 3.34 — a relatively neutral to slightly bullish signal.

Over the last 5 days, we saw mixed signals, including the WR Oversold and Dividend Payable Date on September 3 and the MACD Death Cross and Bullish Engulfing on August 28. Overall, the momentum is weak, with more bearish indicators than bullish ones (4 to 0), and the trend is not clear enough for confident positioning.

Conclusion

With technical conditions weak, mixed analyst views, and retail investors pulling back, we recommend avoiding AWK at this time. Investors may want to wait for a clearer trend or a positive earnings report to assess the stock's potential direction. Until then, the risks appear to outweigh the reward.