For Immediate Release
Chicago, IL – August 4, 2026 – Today, Zacks Equity Research Essential Utilities WTRG, American States Water Co. AWR and California Water Service Group CWT.
Industry: Water Utility
The companies under the Zacks Utility - Water Supply industry operate continuously to deliver a steady supply of clean, potable water and dependable sewer services to millions across the United States. These services are vital for maintaining public health and hygiene. Traditionally, water demand tends to dip during the winter months, as colder weather limits outdoor usage. In the spring, demand remains moderate, influenced by milder temperatures and a gradual increase in outdoor activities.
The aging of pipelines is concerning, but water utilities continue with their upgrade and maintenance projects to minimize disruptions in operations. American Water Works Company, with its widespread operations, provides services to domestic customers and military bases and offers an excellent opportunity to stay invested in the water utility space. Other water utilities worth adding to your portfolio are Essential Utilities, American States Water Co. and California Water Service Group.
About the Utility-Water Supply Industry
The Zacks Utility-Water Supply industry consists of companies that provide drinking water and wastewater services to residential, commercial, industrial and military customers. These utilities operate an extensive network of nearly 2.2 million miles of aging pipelines. To ensure reliable service and expand their reach, they continually replace old infrastructure and invest in new pipeline systems. They also own and operate water treatment facilities, storage tanks and desalination plants to meet demand. Although the industry remains highly fragmented, ongoing improvements in water-use efficiency across households and industries are promoting more sustainable consumption. Given the capital-intensive nature of the business, water utilities are also likely to benefit from lower interest rates, which reduce financing costs and support continued infrastructure investments.
3 Developments Redefining the Water Supply Industry
Aging Infrastructure Requires Huge Investments: The U.S. water and wastewater infrastructure is deteriorating, with water main breaks occurring every two minutes, according to the American Society of Civil Engineers (“ASCE”). The Environmental Protection Agency estimates that $1.25 trillion in investments will be needed over the next 20 years to maintain and expand water services. The Bipartisan Infrastructure Law has committed $50 billion toward improving these systems, especially in underserved communities. ASCE currently rates U.S. drinking water infrastructure at C- and wastewater systems at D+, underscoring the urgent need for upgrades. The regulated water utilities are making investments to upgrade and maintain infrastructure.
Fragmented Water Industry: The U.S. water industry remains highly fragmented, with more than 50,000 community water systems and 14,000 wastewater treatment systems. Small water and wastewater systems serve limited customer bases, restricting their ability to achieve economies of scale, access operational expertise and attract investment. Their weaker bargaining power results in higher costs for equipment, chemicals and services, while costly repairs, infrastructure upgrades and regulatory requirements further strain financial resources. As operations become more complex, many small systems may struggle to maintain service quality, financial stability and long-term reliability. Unless there is rapid consolidation, it will lead to frequent failure of aging water mains and disrupt operations.
Regulatory Pressure & Operational Challenges: The U.S. water supply industry is grappling with increasing regulatory and operational headwinds that are pressuring overall growth. Tightening environmental policies and stricter water quality requirements are driving up compliance expenses, compelling utilities to invest heavily in infrastructure modernization and advanced treatment systems. At the same time, aging water networks, escalating repair and maintenance costs, and exposure to severe weather conditions are intensifying operational difficulties. Rising labor and energy expenses are also weighing on margins, challenging utilities’ ability to ensure dependable service while maintaining financial health.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Utility Water Supply industry is an 8-stock group within the broader Zacks Utilities sector. The industry currently carries a Zacks Industry Rank #211, which places it in the bottom 14% of more than 246 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth. The 2026 earnings estimate has gone down 39.7% in the past two months.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Water Supply Industry Lags the Sector and the S&P 500
The Zacks Utility Water Supply industry has underperformed the Zacks S&P 500 composite and its sector in the past 12 months. The industry has gained 7.3% compared with the Utility sector’s rally of 8.2%. The Zacks S&P 500 composite has advanced 21.1% in the same time frame.
Industry Trading at a Premium to the Sector & the S&P 500
On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing water utility stocks, the industry is currently trading at 22.78X compared with the S&P 500’s 18.52X and the sector’s 15.36X.
Over the past five years, the water supply industry has traded as high as 41.59X, as low as 12.52X and at the median of 24.72X.
Water Utility Industry Stocks to Watch Now
Despite challenges in the water and wastewater industry, investors can watch the following stocks from the water space.
American Water Works Company: Camden, NJ-based American Water, along with its subsidiaries, provides water and wastewater services to millions of Americans. The company continues to expand operations through acquisitions and organic means. American Water Works plans to invest $3.7 billion in 2026 to strengthen and expand its existing infrastructure. AWK aims to invest $29 billion during the 2026-2030 period.
The Zacks Consensus Estimate for 2026 and 2027 earnings per share has moved up 7.98% and 8.35% year over year, respectively. The long-term (three to five years) earnings growth of the company is currently pegged at 8.13%. The current dividend yield of the company is 2.67%. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Essential Utilities: The Bryn Mawr, PA-based company, along with its subsidiaries, provides water, wastewater and natural gas services to customers. WTRG aims to invest $1.7 billion in 2026 to rehabilitate and strengthen its water and natural gas pipeline systems. It is able to reduce regulatory lag and facilitate growth through strategic acquisitions. The company recently entered into a merger agreement with American Water Works, which is expected to close in first-quarter 2027, subject to necessary approvals.
The Zacks Consensus Estimate for 2026 and 2027 earnings per share has moved up 0.45% and 9.62% year over year, respectively. The current dividend yield of the company is 3.44%. The company currently has a Zacks Rank #3.
American States Water Company: San Dimas, CA-based American States Water, along with its subsidiaries, provides water, wastewater and electric services to customers. AWR provides long-term water and wastewater services to military bases and continues to pursue new long-term contracts from more military bases. The company aims to invest in the range of $185-$225 million in 2026 to upgrade its infrastructure. It is expected that the company will continue to make fresh investments to upgrade and expand operations.
The Zacks Consensus Estimate for 2026 and 2027 earnings per share has moved up 10.09% and 2.93% year over year, respectively. The company’s long-term earnings growth rate is 6.93%. The current dividend yield is 2.35%. AWR currently has a Zacks Rank #3.
California Water Service Group: The San Jose, CA-based company, along with its subsidiaries, provides water utility and other related services to customers in the United States. The company continues to expand operations through acquisitions and plans to invest nearly $2 billion in the 2026-2028 period to further strengthen its infrastructure, repair and upgrade aging assets.
The Zacks Consensus Estimate for 2026 and 2027 earnings per share has moved up 19.07% and 7.03% year over year, respectively. The long-term earnings growth is currently pegged at 10.62%. The current dividend yield of the company is 2.67%. The company currently has a Zacks Rank #3.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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