American Water Works Company, Inc.AWKNYSE

Overview Intelligence Charts News Fundamentals

DCF Valuation

⚠️Model Warnings

•Terminal value represents 86% of enterprise value. Valuation highly sensitive to long-term assumptions.

DCF Valuation Summary

Strong Buy

Fair Value: $189.12 per share(market-calibrated)

+39.3%

Upside to Fair Value

Current

$135.81

Pure Model

$201.13

Fair Value

$189.12

Bull Case

$295.43

Bear Case

$139.14

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.63%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $201.13.

What's Driving This Ratingfor AWK

↓

CapEx normalizing toward maintenance

Historical CapEx is 50.62% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$4.2B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 36.77% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 5.02% revenue growth, fading to 2.00% by Year 10. Revenue reaches $9.2B (vs $5.1B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 74.16% indicates efficient cash generation. FCF reaches $3.5B by Year 10 (37.87% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.78

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.01%

Cost of Debt

Pre-tax Cost of Debt3.06%

Tax Rate21.87%

After-tax Cost of Debt2.39%

Equity Weight (E/V)62.46%

Debt Weight (D/V)37.54%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (62.46% × 8.01%) + (37.54% × 2.39%)

= 5.90%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$5.4B	$6.2B	$7.6B	$8.4B	$9.2B
EBIT	$2.0B	$2.3B	$2.8B	$3.1B	$3.4B
Tax	$434M	$498M	$609M	$678M	$741M
NOPAT	$1.6B	$1.8B	$2.2B	$2.4B	$2.6B
+ Depreciation	$771M	$884M	$1.1B	$1.2B	$1.3B
- Capex	$2.7B	$2.5B	$2.3B	$1.7B	$460M
- Δ NWC	$20M	$30M	$38M	$31M	$14M
Free Cash Flow	-$430M	$127M	$921M	$1.9B	$3.5B
Discount Factor	0.944	0.842	0.751	0.669	0.564
Present Value	-$406M	$107M	$691M	$1.3B	$2.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.5B

Terminal Growth Rate2.00%

WACC5.90%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$91.2B

PV of Terminal Value$51.4B

Exit Multiple Method

Year 10 EBITDA$4.7B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$75.2B

PV of Terminal Value$42.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$8.1B

PV of Terminal Value$51.4B

Enterprise Value$59.5B

(-) Net Debt$15.8B

Equity Value$43.7B

Shares Outstanding195M

Price per Share$224.21

Exit Multiple Method

PV of Projected FCFs$8.1B

PV of Terminal Value$42.4B

Enterprise Value$50.5B

(-) Net Debt$15.8B

Equity Value$34.7B

Shares Outstanding195M

Price per Share$178.05

Pure Model Fair Value

$201.13

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.90%	$311.65	$357.17	$405.64	$384.67	$364.71
4.90%	$227.04	$248.96	$278.44	$320.20	$364.71
5.90%	$173.20	$185.58	$201.13	$221.25	$248.32
6.90%	$134.99	$142.69	$151.95	$163.33	$177.62
7.90%	$105.99	$111.10	$117.07	$124.15	$132.67

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$139.14

2.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.98

Base Case

$201.13

48.1% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.78

Bull Case

$295.43

117.5% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.66

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Utilities Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.02%

Year 3 Revenue Growth6.78%

Year 5 Revenue Growth7.03%

Year 7 Revenue Growth5.02%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin36.77%

Tax Rate21.87%

Historical Capex / Rev50.62%

Terminal Capex / Rev5.00%

NWC / Revenue7.63%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 16x EV/EBITDA (Utilities sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

Explore More

S&P 500 Screener

Filter and sort all 500 stocks

Market Movers

Today's biggest gainers and losers

Market Heatmap

Visual sector performance