American Water (AWK) Arm to Buy Salem City Water & Sewer Assets
American Water Works Company, Inc.’s AWK subsidiary, New Jersey American Water, announced that it has signed an agreement to acquire Salem City Water and Sewer System for $18 million. This acquisition is expected to be completed in the second half of 2024, subject to necessary approvals.
Timely repairs and maintenance of aging water and wastewater infrastructure are essential to providing high-quality 24x7 services to customers. As part of the acquisition deal, New Jersey American Water plans to invest more than $50 million to upgrade the aging water and sewer infrastructure, in the next 10 years, after the acquisition’s closure, to provide high-quality sewer services to customers.
New Jersey American Water has been expanding its sewer service business in the state through systematic acquisitions. In October 2023, the company acquired Somerville Sewer System for $7 million, which added nearly 3,800 customers to its existing base.
Aging Industry Needs Investments & Consolidation
The aging of water and wastewater infrastructure and delays in essential upgrades are concerns for the industry. Per the American Society of Civil Engineers, nearly 50,000 community water systems and 16,000 wastewater treatment systems in the United States are presently providing water solutions to customers. Some of the service providers are too small and have limited financial strength to carry out the essential, costly repairs on time, which leads to pipeline breakage and disruption of services and increases the possibility of contamination.
Fragmentation in the water and wastewater industry is a headwind. Large water utility companies continue to acquire small players to ensure the extension of high-quality services to customers and the investments required to upgrade old and acquired assets. Per the U.S. Environmental Protection Agency, an investment of nearly $744 billion is necessary to maintain and expand water and wastewater services to meet demand over the next 20 years.
American Water Works, through its subsidiaries, is making systematic acquisitions and taking essential steps to upgrade the old infrastructure of its acquired assets. AWK has added 7,900 customers till Sep 30, 2023, by acquiring 14 companies.
The company’s pending acquisitions (as of Sep 30, 2023), when completed, will add another 88,100 customers to its customer base. In 2024, the company aims to invest $3.1 billion, with a major portion utilized for infrastructure improvements in Regulated Businesses. Over the long term, AWK aims to invest in the range of $16-$17 billion in the 2024-2028 period and $34-$38 billion in the 2024-2033 period.
California Water Service Group CWT is also expanding operations through inorganic routes. It is expected to invest $360 million and $365 million in 2023 and 2024, respectively, to upgrade its infrastructure and efficiently serve its expanding customer base. The company is also acquiring water and wastewater systems to expand operations.
Essential Utilities WTRG is also making acquisitions to expand its operations. Since 2015, it has expanded its utility operations by completing several water and wastewater acquisitions, adding 129,000 customers. The six acquisitions completed in 2023 added 11,025 customers. At present, there are five pending acquisition deals for a total purchase price of $354 million, which, when completed, will add 211,000 customers to its existing customer base.
Essential Utilities plans to invest $1.1 billion annually in the 2023-2025 period to strengthen its water and natural gas operations further.
Price Performance
Over the past month, shares of AWK have gained 9.5% compared with the industry’s 8.3% growth.
Image Source: Zacks Investment Research
Zacks Ranks & Another Stock to Consider
American Water currently has a Zacks Rank #2 (Buy).
Another top-ranked company from the same industry is Global Water Resources GWRS. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
GWRS’ long-term (three- to five-year) earnings growth rate is pegged at 15%. The Zacks Consensus Estimate for 2023 earnings of 29 cents per share reflects an increase of 7.4% over the past 60 days.
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
California Water Service Group (CWT) : Free Stock Analysis Report
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Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
