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American Water (AWK) Arm to Invest $15M to Replace Old Mains

Zacks Equity Research

American Water Works AWK announced that its unit, Missouri American Water is going to invest $15 million through 2023 for replacing aging water mains in Webster Groves. American Water’s unit continues to make investment to replace the aging water mains in Webster Groves. It has invested $7 million over the past five years.

Replacement of aging water mains is essential to avoid interruption of 24x7 water services and is far more cost effective than waiting until the main line fails or breaks. Taking care of aging water pipeline is an utmost priority for water utilities, as millions of gallons of potable water is lost each year due to crucial line breaks.

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, water utility Essential Utilities Inc. WTRG is also making regular investments in water and wastewater systems. Its long-term plan is to invest $1.4 billion through 2021 to rehabilitate and strengthen the existing systems.

Consolidation Can Help Water Industry

According to an American Water Works report, more than 2 trillion gallons of treated water is lost per year due to leakage from aging pipes. The report also indicates that by 2020, nearly 44% of the U.S. pipeline infrastructure will be classified as poor, very poor or life elapsed. 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.

The highly fragmented water industry creates operational challenges in meeting increasing water and wastewater service requirement. Hence, water utilities are actively acquiring small water and wastewater service units, and making required investments to upgrade the quality of services. American Water Works continues to widen market footprint through strategic acquisitions. In 2019, the company added 53,100 customers to the existing customer base through 21 acquisitions. The 28 pending acquisitions as of Feb 19, 2020, on completion, are expected to add nearly 44,200 customers to its customer base.

Price Performance

Year to date, shares of American Water have outperformed the industry.


Zacks Rank and Key Picks

Currently, American Water has a Zacks Rank #3 (Hold). A couple of better-ranked water utilities include AquaVenture Holdings Ltd. WAAS and Veolia Environnement SA VEOEY. AquaVenture sports a Zacks Rank #1 (Strong Buy) and Veolia Environnement carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AquaVenture delivered average positive earnings surprise of 15.6% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 1.8% in the past 90 days.

Veolia Environnement has a long-term (three to five years) earnings growth rate of 9.7%. The Zacks Consensus Estimate for 2020 earnings has moved up 0.6% in the past 90 days.

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