American Water Q3 EPS Rises, 2026 Guidance Narrows

American Water (AWK) reported higher adjusted earnings for the third quarter and narrowed its 2026 adjusted earnings guidance to the upper half of its previous range, supported by new rates in Pennsylvania and New Jersey. The water utility also introduced standalone 2027 adjusted EPS guidance that implies about 8% growth at the midpoint, while maintaining an expected first-quarter 2027 closing for its proposed merger with Essential Utilities.

Adjusted diluted EPS increased to $2.00 in the third quarter from $1.89 a year earlier. For the nine months ended September 30, adjusted EPS rose to $4.63 from $4.40.

Revenue contributed $0.28 per share to the quarterly increase. That benefit was partly offset by higher depreciation, financing and dilution, operating and maintenance costs, and general taxes. Financing and dilution included a $0.03-per-share effect related to proceeds from equity forward agreements received in June.

American Water narrowed its 2026 adjusted EPS forecast to $6.07 to $6.12 from $6.02 to $6.12. The revised range represents approximately 8% growth from 2025 adjusted EPS of $5.64. The non-GAAP outlook excludes estimated costs associated with the Essential Utilities transaction, weather impacts and incremental interest income through February 13 related to the former HOS secured seller note.

Rate Decisions Support Revenue Growth

The company said rate increases in Pennsylvania and New Jersey that took effect during the third quarter were helping drive stronger second-half results. Pennsylvania regulators authorized $75 million of additional annualized revenue, with rates effective August 13, while New Jersey authorized $68 million, effective September 15.

American Water completed four general rate cases during 2026 in Maryland, West Virginia, Pennsylvania and New Jersey. Five cases remained active in California, Virginia, Illinois, Kentucky and Missouri. The company expects Kentucky rates to become effective in December 2026, while new rates in Illinois and California are expected in January 2027, subject to final regulatory action.

Revenue from base rates and infrastructure mechanisms is also central to the company’s 2027 outlook. American Water forecast standalone adjusted EPS of $6.53 to $6.63 for next year, representing about 8% growth at the midpoint from the 2026 guidance range. Management also cited cost management, customer affordability and cost-effective financing as priorities.

The 2027 forecast excludes estimated transaction costs related to the Essential Utilities merger and any effects from weather. It is a standalone outlook and therefore does not incorporate the proposed combination.

American Water affirmed its longer-term targets of 7% to 9% annual EPS growth and dividend-per-share growth, a dividend payout ratio of 55% to 60%, and debt representing less than 60% of total capital. The midpoint of the 2027 outlook implies an adjusted EPS compound annual growth rate of 8.4% from 2023.

Capital Spending and Acquisitions Expand

American Water invested $2.8 billion through the third quarter, led by improvements to water systems. Its estimated rate base reached $26 billion as of September 30, and the company continues to target an approximately 8% to 9% rate-base compound annual growth rate.

The utility increased its five-year capital plan to more than $20 billion for 2026 through 2030, including at least $17.5 billion of regulated system investments and $2 billion to $2.5 billion for regulated acquisitions. Its 2026-through-2035 plan now exceeds $48 billion, including more than $43 billion for system investments and $4 billion to $5 billion for acquisitions.

The company attributed the higher plans primarily to faster pipe replacement and an expansion of programs addressing aging infrastructure, including lead and galvanized steel service lines. The plans include $2 billion for PFAS-related work, concentrated primarily in 2026 through 2028, and $1.5 billion associated with lead and copper rule improvements.

American Water closed acquisitions covering approximately 80,600 customer connections across 68 systems in 10 states during the first nine months of 2026. That total included the acquisition of systems formerly owned by Nexus Water Group. Another 19 acquisitions covering about 36,000 connections were under agreement as of September 30.

The company ended the quarter with debt equal to 58% of total capital, below its long-term ceiling of 60%, and available liquidity of $1.34 billion. Its 2026-through-2030 financing plan includes $2.5 billion of equity issuance, consisting of about $1 billion in 2026 and an additional roughly $1.5 billion in 2029, subject to market conditions. The current 2027 plan calls for $2 billion to $3 billion of long-term debt financing.

Essential Utilities Merger Advances

American Water said its proposed merger with Essential Utilities remains on track to close by the end of the first quarter of 2027. Kentucky, Ohio and Virginia have approved the transaction, while settlements have been reached in Pennsylvania, North Carolina and Texas.

An administrative law judge recommended approval in Illinois, with a commission order due by November 5. Settlement discussions were continuing in New Jersey. The waiting period under the Hart-Scott-Rodino Act expired on August 14, satisfying one of the conditions required for closing.

Completion remains subject to outstanding regulatory approvals and other closing conditions. The company also identified potential risks including delays, burdensome regulatory conditions, transaction costs, litigation and uncertainty over the merger’s financial and operational effects.

Other material uncertainties include regulatory decisions on customer rates and capital recovery, inflation and interest rates, access to debt and equity financing, aging infrastructure, supply-chain constraints, water availability, extreme weather, cybersecurity threats and evolving environmental rules. PFAS requirements are expected to account for about $2 billion of capital spending and up to $50 million of annual operating expense in the 2026-through-2030 plan.