Trump's Stance On Clean Water Infrastructure Should Help American Water Works

Donald Trump's victory represents a positive for American Water Works Company Inc (NYSE: AWK), since its dominant size and scope positions the company to “benefit the most from increased infrastructure spend and privatization,” Bank of America’s Brian Chin said in a report.

Chin upgraded the rating on American Water Works from Neutral to Buy, while raising the price objective from $77 to $84.

A Positive

Chin explained that Trump’s infrastructure platform would likely support M&A and organic growth. Trump had emphasized the need to significantly increase infrastructure build, especially for getting clean water. Moreover, he highlighted the need for a deficit neutral plan.

In case government policy leans towards the use of private capital for infrastructure investment, this would benefit American Water Works’ bolt-on acquisition strategy, the analyst noted.

Size Does Matter

American Water Works has a market cap of $12.6 billion, which gives the company a competitive edge in terms of cost of funds and footprint versus its much smaller publicly owned peers.

“American Water’s dominant market position in size, scale, and scope means it can spread out development costs for acquisition targets over a wider customer base than smaller peers, meaning it can offer more competitive bids than peers,” Chin wrote.

The company had recently raised its FY 2016 guidance, following which other analysts had revised their expectations higher.