American Water (AWK) Arm Buys Ironton Water & Sewer Assets
American Water Works Company, Inc.’s AWK subsidiary, Missouri American Water, announced that it acquired Ironton Water and Wastewater System for $3.7 million. This acquisition will add 700 water customers and 700 wastewater customers to Missouri American Water’s existing customer base.
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, Missouri American Water plans to invest more than $8.4 million to upgrade the aging water and sewer infrastructure of Ironton Water and Wastewater System in the next 10 years after the deal’s closure to provide high-quality sewer services to customers.
Aging Industry Needs Investments & Consolidation
The aging 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 essential and costly repairs on time, leading to pipeline breakage and disruption of services and increasing 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, AWK aims to invest $3.1 billion, with a significant 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 its operations. In August 2023, the CWT completed the acquisition of Skylonda Mutual Water Company’s water system assets, which added 156 customers.
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 last month, shares of AWK have gained 3.5% compared with the industry’s 5.4% growth.
Image Source: Zacks Investment Research
Zacks Ranks & Another Stock to Consider
American Water currently has a Zacks Rank #2 (Buy).
Another top-ranked stock from the same industry is Global Water Resources GWRS. The company presently 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
Global Water Resources, Inc. (GWRS) : Free Stock Analysis Report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
