American Water Works (AWK) is expected to deliver Q1 earnings ahead of consensus, driven by a strong pickup in revenue recoveries during the early part of the year, UBS Securities said in a note emailed Friday.

The firm projects Q1 diluted earnings per share of $1.10, compared to the consensus estimate of $1.05. UBS highlighted $113 million in expected revenue recoveries as a key driver, including $66 million from 2024 rate cases, $15 million from riders, and $32 million from 2025 cases.

Despite the near-term strength, UBS flagged concerns about limited catalysts ahead and recent outperformance relative to the broader utilities sector. The stock has climbed 19.7% over the past three months and 17.1% year to date, outpacing the Dow Jones Utilities Index's gains of 2% and 4.5%, respectively.

UBS also pointed to uncertainty around the timeline for implementing new PFAS regulations. While American Water Works plans to invest $1 billion to comply, enforcement may be delayed beyond the 2029 deadline due to the complexity of applying the rule across tens of thousands of small US water systems.

The firm expects the investment will earn a ratebase return but noted that delays could weigh on investor sentiment, according to the note.

Still, UBS highlighted several positives in the company's investment profile, including a top-quartile 8% EPS growth outlook and constructive regulatory environments, with no major rate cases expected until the fourth quarter of 2025. A smooth CEO transition is also anticipated in May, with President John Griffith set to succeed Susan Hardwick.

UBS downgraded the stock to neutral from buy, but raised its price target by $4 to $160.

Price: 143.69, Change: -2.35, Percent Change: -1.61