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American Water Arm Acquires Village of Sidney Water System

Zacks Equity Research

American Water Works Company AWK announced that its subsidiary, Illinois American Water has completed the acquisition of the Village of Sidney water system for $2.3 million. This acquisition will add 560 water customers to its existing customer base in the Champaign County service area.

The buyout will also ensure that the Village of Sidney water system is provided with the much-needed investments. American Water Works will upgrade the existing water system, starting with the replacement of the existing water meters of customers.

Illinois American Water provides reliable water and wastewater services to 1.3 million people in Illinois. This American Water Works’ unit is quite active in expanding its service territory in Illinois through acquisitions. In December 2019, the company invested $61.3 million to acquire City of Jerseyville’s water and wastewater systems and Granite City wastewater systems, which added 20,700 customers to its existing customer base. Recently, the company acquired the Village of Leonore water system for $100,000, which added 68 customers to its existing customer base.

Consolidation is Essential

Consolidation is quite essential for the fragmented water industry, as nearly 50,000 water and 15,000 wastewater operators are 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.

Billions of gallons of potable water are lost in the United States every year due to numerous pipeline breaks across in 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 WTRG not only expanded water and wastewater operations through acquisitions, but also ventured into the natural gas distribution business through the acquisition of Peoples Gas.

Investments in Water Industry

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

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 sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American States Water delivered average positive earnings surprise of 6.5% in the last four quarters. The Zacks Consensus Estimate for 2020 and 2021 has moved up 3.2% and 3%, respectively, in the past 60 days.

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American States Water Company (AWR) : Free Stock Analysis Report
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