American Water Works' (AWK) pending merger with Essential Utilities (WTRG) could help address concerns around water bill affordability and the sustainability of earnings-per-share growth guidance, BofA said in a Monday note.

BofA said that American Water Works' 50-100-year infrastructure replacement cycle warrants a valuation premium compared to electric peers, who are more depend upon rapid infrastructure build-outs to serve their datacenter customers.

Noting its concerns on the company, BofA said that electric and gas utility EPS growth has caught up to American Water Works, eroding the historical 20-40% premium that was previously supported by 200-300 basis points higher growth.

Additionally, BofA said that the company relies on frequent rate increases across multiple jurisdictions to achieve its 7% to 9% EPS growth guidance and that policymakers have raised affordability concerns.

The firm raised its rating on American Water Works to neutral from underperform and its price target to $139 from $117.

Price: 131.56, Change: +3.58, Percent Change: +2.80