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American Water Arm Acquires Town of Riley Wastewater System

Zacks Equity Research

American Water Works Company AWK announced that its subsidiary, Indiana American Water has completed the acquisition of the Town of Riley’s wastewater system in western Indiana for $1.54 million. This acquisition will add 460 wastewater customers to its existing customer base.

Indiana American Water provides reliable water and wastewater services to 1.34 million people in Indiana. This acquisition will allow the company to address the issues of small utility service providers and extend high-quality services to customers without increasing the rates.

Water Industry Needs Investment

Per the U.S. Environmental Protection Agency, more than $744 billion is needed for U.S. water and wastewater infrastructure improvement. Hence, investment in this aging and fragmented water industry is quite essential. American Water recently introduced a 10-year capital spending plan in the range of $20-$22 billion.

In addition to American Water, Essential Utilities WTRG is also making regular investments in water and wastewater systems. Its long-term plan is to invest $2.8 billion in the 2020-2022 time period to rehabilitate and strengthen the existing water and natural gas pipeline systems.

Consolidation in Water Space

Consolidation is quite essential for the fragmented water industry, as nearly 50,000 water and 15,000 wastewater operators are currently providing services in the United States. In the highly fragmented water industry, a few service providers are quite small in size, which creates operational challenges in meeting increasing water and wastewater service requirement. It becomes extremely difficult for small service providers to invest a large sum to upgrade and repair old water mains.

Billions of gallons of potable water are lost in the United States every year due to numerous pipeline breaks across the United States on a daily basis. Since a larger number of existing water and wastewater pipelines are gradually nearing the end of their service life, this is resulting in breakage, thereby increasing the risk of contamination of potable water.

Hence, water utilities are actively acquiring small water and wastewater service units, as well as making the required investments to upgrade the quality of services. Global Water Resources, Inc. GWRS is taking the inorganic route to expand operations in the United States. Another water utility, Essential Utilities not only expanded water and wastewater operations through acquisitions, but also ventured into the natural gas distribution business through the acquisition of Peoples Gas.

Price Performance

Shares of American Water have outperformed the industry in the past 12 months.



Zacks Rank and Key Pick

Currently, the company has a Zacks Rank #3 (Hold). A better-ranked water utility is American States Water Company AWR, which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American States Water delivered average positive earnings surprise of 6.5% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings of $2.23 per share indicates year-over-year growth of 4.7%.

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