Keystone Risk & Merger Valuation Math: 2Q26 Preview; Stay Hold on AWK & WTRG

研报英文原文证据摘录

Keystone Risk & Merger Valuation Math: 2Q26 Preview; Stay Hold on AWK & WTRG

USA | Power & Utilities EquityJulyResearch1, 2026

KEY STOCKS FEATURED INCLUDE:Keystone Risk & Merger Valuation Math: 2Q26

TICKER RATING PRICE TARGETPreview; Stay Hold on AWK & WTRG

AWK HOLD $134.00

WTRG's PA risk intensifies following Gov Shapiro's official intervention in its WTRG HOLD $41.00

PNG rate case and raises question if it will still file its Aqua PA case by YE. This

all culminates into a challenged FY27e EPS outlook. We further lower estimates

by ~3% to reflect the risk, following our downward estimate revision earlier this

KEY CHANGES INCLUDE:

month. Merger-arb has indeed widened to ~5%, yet the compressed standalone

WTRG valuation still present ~20% downside. Hold. TICKER RATING PRICE TARGET

AWK HOLD $134.00 ($127.00)

Governor Shapiro's letter codifies the PA from caution to concrete earnings risk. On June 16th, PA WTRG HOLD $41.00 ($37.00)

Governor Josh Shapiro formally intervened in Peoples' Natural Gas (PNG) base rate case (docket:

R-2026-3060855). The key areas of challenge are consistent with the principles that were outlined

in his earlier letter that set the rule of engagement for future rate cases and are detailed in the full Exhibit 1 - AWK-WTRG Merger Arb With/

report. The risk for WTRG is outsized, with ~75% of its rate base in the state, and now tangible as WTRG Without Dividend Adjustments (vs Average

Deal Annoucement)would need to navigate a likely weaker than expected gas rates relief and thread the needle on its planned Since

AWK-WTRG Merger

12.0%

aqua case. 10.0% Arb With/Without Dividend Adjustments (vs Average Since Deal Annoucement)

7.6%

8.0%

6.4% 6.0%Intensifying PA risk drives the broadening of arb spread, but WTRG standalone valuation

4.0% 4.8%