October 24, 2011 - American Water Works Company, Inc. (AWK-NYSE) provides water and wastewater services to residential, commercial, industrial, public, and other customers in the United States and Canada. As of December 31, 2010, the company served approximately 15 million people with drinking water, wastewater, and other water-related services in approximately 30 states and 2 Canadian provinces. It owned approximately 90 surface water treatment plants, 600 groundwater treatment plants, 1,200 groundwater wells, 60 wastewater treatment facilities, 1,300 treated water storage facilities, 1,300 pumping stations and 100 dams, and 49,000 miles of mains and collection pipes.

Further, the company provides biosolids management, transport, and disposal services to municipal and industrial customers. Additionally, it offers granular carbon technologies and products for cleansing water and wastewater, wastewater residuals management services, and water and wastewater facility engineering services. The company was founded in 1886 and is based in Voorhees, New Jersey.

There are limits to everything on earth, even water. With more population to support every year, water is becoming one of the scarcest commodities on the planet. Most likely your water bill went up this year and will again in the near future. It's because more is being used for agriculture and manufacturing (did you know that one pair of denim jeans takes over 1800 gallons of water to produce? That's how much water is needed to grow the cotton used.)

Knowing that a commodity is in ever higher demand, usually means prices for it go higher, especially when it's hard to find a substitute. That's why American Water, the largest investor-owned water and wasterwater utility in the U.S., is seeing earnings grow consistently. And analysts don't see that slowing down.

Earnings per share (EPS) for this year should be $1.75 (according to the consensus from 11 analysts), up from $1.53 in 2010. For 2012, they predict $1.89, with some seeing as much as $1.97. For the third quarter, expect 76 cents, up from 71 cents last year in the third period. For the final quarter, look for 32 cents vs 23 cents last year.

Management is busy with mergers and acquisitions. It recently bought operations in Missouri and Ohio, but sold ones in Texas, Arizona, and New Mexico. It's eying 7 water systems in New York to bring into the portfolio.

On the negative side, there are plenty of aging pipelines that need fixing, maintenance or replacement. It's an inevitable cost of doing business. These repairs or new pipe will eventually erode some of the profits any regulatory relief provides.

One of the benefits of this stock is its price stability. With all the market turmoil, AWK kept calm, seeing its price rise from $19.40 in 2010 to a high of $31.00 this year. It was a slow, steady climb that must have given its investors plenty of sound sleep while others tossed and turned.

The dividend is another feature. Though nothing extravagant, 3% in the current market where yields for most stocks is closer to 2% and CD's are close to zero, it does give some income to holders. Expect more investors to look for safe havens like AWK if the market volatility continues or increases.

Essential Numbers:
- Market Cap: $5.35 billion
- Forward P/E: 16.13
- Price to book value: 1.29
- Operating margin: 28%
- Profit margin: 10.6%
- Return on assets: 3.47%
- Total revenues last 12 months: 2.79 billion
- Total cash: $13.47 million
- Total cash per share: 8 cents
- Total debt: $5.84 billion
- Current ratio: 1.13
- Book value per share: $23.70
- Beta: .32
- 52- week change: 28.69%
- Shares Outstanding: 175.44 million
- Held by insiders: .1%
- Held by Institutions: 88.4%
- Annual divided: 92 cents
- Yield: 3.%

AWK is most like a utility because so much of its revenue is regulated. But it still has 20% unregulated that allows for market pricing. And with water demand growing and no easy solution for desalination or other water producing efforts, expect prices for water to continue to rise. As they do, AWK will benefit.

- Company Web site: www.amwater.com