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American Water (AWK) Pennsylvania Arm to Buy Wastewater Assets

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Zacks Equity Research
·4 min read
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American Water Works Company AWK announced that its subsidiary, Pennsylvania American Water, has signed an agreement with the York City Sewer Authority to purchase wastewater system assets of the City of York in York County for $235 million. This acquisition is expected to close by 2021-end or the beginning of 2022, subject to necessary regulatory approvals.

Pennsylvania American Water, upon closure of the acquisition, will be serving 45,000 new customer connections. The acquisition will pave way for the necessary investments to upgrade the existing wastewater assets of the City of York.

Pennsylvania American Water has successfully closed a few large acquisitions and expanded the business in Pennsylvania. Pennsylvania American Water currently provides reliable water and wastewater services to more than 2.4 million people in its service territories.

Consolidation Essential in Water Space

Aging of assets and fragmentation are the primary concerns of the existing U.S. water and wastewater industry. Per an American Water report, more than 53,000 water systems in the United States are providing water solutions to customers at present, which creates operational challenges in meeting the requirement for replacement, and modification of the aging water and wastewater infrastructure. Per the Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain, and expand drinking water as well as wastewater services to meet demand over the next 20 years.

American Water is quite active in acquiring small service providers. In 2020, it successfully closed 23 acquisitions via adding 37,800 customers to the customer base and expanding operations in the United States. The pending 27 acquisitions (as of Jan 31) — when completed — will add another 29,800 customers to the customer base. The company is making regular investments to upgrade the existing and acquired assets. American Water has plans to invest $10.4 billion in the 2021-2025 time period and $22-$25 billion in the next decade.

Likewise, another water utility, Essential Utilities WTRG has not only expanded water and wastewater operations through acquisitions but also ventured into the natural gas distribution business through the acquisition of Peoples. The company plans to invest $3 billion through 2023 to fortify operations and efficiently serve the expanding customer base. Another water utility, Global Water Resources, Inc. GWRS is also taking the inorganic route to expand operations in the United States and making investments to upgrade infrastructure.

Price Performance

Shares of American Water have outperformed the industry in the past 12 months.

Zacks Rank & Key Pick

The company currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is California Water Service Group CWT, currently having a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

California Water Service currently has a dividend yield of 1.64%, which is better than the industry average. The Zacks Consensus Estimate for its 2021 and 2022 earnings per share has moved up 3.5% and 6.8%, respectively, in 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

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Zacks Investment Research