American Water (AWK) Arm Buys Donahue City's Assets for $1.75M
American Water Works Company, Inc.’s AWK subsidiary, Iowa American Water, announced that it acquired Donahue’s Water and Sewer System for $1.75 million. This acquisition will add 140 water and 118 wastewater customers to the company’s Quad Cities service area.
The acquisition of water and wastewater assets will allow Iowa American Water to provide high-quality services to customers. The company has been operating Donahue’s water system for about three years and the acquisition of the same will allow Iowa American Water to focus on upgrading the water and wastewater system as needed.
Timely repairs and maintenance of aging water and wastewater infrastructure are essential to providing high-quality 24x7 services to customers. Iowa American Water plans to continue investing in the city’s water and wastewater systems to address infrastructure issues as well as upgrade safety and security systems.
Fragmented Water Industry Needs Investments & Consolidation
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. This 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.
Other investor-owned water utilities like Essential Utilities WTRG and California Water Service Group CWT, among others, are making investments to strengthen infrastructure and are acquiring assets to expand operations.
California Water Service Group expects to invest $725 million through 2024 and Essential Utilities aims 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, AWK shares have gained 6.7% compared with the industry’s 7.4% growth.
Image Source: Zacks Investment Research
Zacks Ranks & Another Stock to Consider
American Water currently has a Zacks Rank #2 (Buy).
Another top-ranked 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
Global Water Resources, Inc. (GWRS) : Free Stock Analysis Report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
