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American Water Arm Upgrades Wastewater System, Invests $3.7M

Zacks Equity Research
·4 min read

American Water Works AWK announced that its subsidiary, Illinois American Water has invested $3.7 million in the past 12 months to upgrade and maintain the Alton Regional Wastewater System. Last June, Illinois American Water acquired this system and made a commitment to improve the quality of sewer services for customers.

A significant portion of the first-year investment included completion of the design phase for separating the combined sewer system in the Turner Tract, Piasa Valley and Shields Valley service areas. In addition, new sewer mains were installed, wastewater treatment plants were replaced and other necessary changes were made to provide quality services to clients.

Infrastructure is Getting Old

The existing water and wastewater infrastructure of the United States is getting old and gradually moving toward the end of effective service life. Per the finding of Utah State University, between 250,000 and 300,000 line breaks occur every year in the United States due to aging of the existing water infrastructure, which in turn results in the wastage of huge volumes of potable water each day. According to the American Water Works Association, an estimated $1 trillion investment is necessary to maintain and expand the drinking water service to meet demand over the next 25 years.

It is no doubt an uphill task for the extremely fragmented water utility industry. At present, more than 53,000 water systems in the United States are providing water solutions to customers. The highly fragmented water industry creates operational challenges in meeting or increasing the requirement for replacement, and adding to aging water and wastewater infrastructure.

Water utilities like American Water are quite active in acquiring small water and wastewater providers, as well as making the necessary investments to upgrade the infrastructure of the acquired assets. As of July 31, 2020, the company completed 13 acquisitions, which added 7,800 water and 3,000 wastewater customers to the existing customer base. It is also making regular investments in its service territories, and maintaining water as well as wastewater mains. American Water has plans to invest $8.8-$9.4 billion in the 2020-2024 time period and $20-$22 billion in the next decade.

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.

Another water utility Middlesex Water MSEX is also very active in upgrading its water infrastructure. The company — through the multi-million infrastructure investment initiative, Water for Tomorrow® Program — is replacing aging infrastructure and strengthening the water distribution system for continued service reliability, resiliency and maintaining water quality.

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, currently holding 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 an average earnings surprise of 0.2% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 2.7% in the past 90 days.

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Middlesex Water Company (MSEX) : Free Stock Analysis Report
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
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