American Water (AWK) Unit to Acquire Water Assets for $2.7M
American Water Works Company AWK has announced that its subsidiary, Illinois American Water, has acquired the water distribution assets of the City of Rosiclare, IL, for $2.7 million. This acquisition adds 525 water service customers to Illinois American Water’s existing customer base of 1.3 million.
The aging of crucial water and wastewater infrastructure is concerning for the water industry of the United States. After completing the acquisition, Illinois American Water plans to invest nearly $5 million in the next five years to improve the overall water and wastewater infrastructure of the acquired assets.
The acquisition of waste distribution assets from the City of Rosiclare will enable the company to increase its total water production and distribution channels and take adequate steps for an overall improvement in services. Incidentally, in 2020, Illinois American Water already acquired the City of Rosiclare’s water production and wastewater systems.
Consolidation – A Must for Fragmented Industry
According to the Environmental Protection Agency, at present, more than 50,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. Due to a large number of small operators in the industry and a lack of adequate funds, at times, essential upgrades and repairs of infrastructure get delayed.
Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. The breaks in the pipeline result in the wastage of 6 billion gallons of potable water each day and add to the losses of water utility operators. Aging and a lack of timely maintenance are major contributors to pipeline breaks.
The acquisition of small units by larger utilities ensures necessary investments for the upgrade of infrastructure and the continuation of high-quality services for customers. American Water Works continues to widen its market footprint through strategic acquisitions.
Utilities Continue to Consolidate
American Water Works is expanding its customer base through organic initiatives and acquisitions. It continues to focus on the acquisition of utilities that provide services to 5,000-50,000 customers. Through 15 closed acquisitions, the company added 51,000 customers to its existing customer base. AWK’s pending acquisitions (as of Sep 30, 2022), when completed, will add another 65,300 customers to its base.
Other water utilities like California Water Service Group CWT, SJW Group SJW and Essential Utilities WTRG, among others in the water utility space, are expanding operations through systematic acquisitions.
California Water Service recently received approval to acquire the water system assets of Skylonda Mutual Water Company. The buyout is scheduled to close later this year, subject to customary closing conditions. Also, in June 2022, CWT announced that its unit, Texas Water Service, closed the acquisition of Railyard Utility’s wastewater system by collaborating with BVRT Utility Holding Company.
The Zacks Consensus Estimate for California Water Service's 2023 earnings suggests year-over-year growth of 21.7%. The current dividend yield of the company is 1.63%.
SJW Group completed more than 25 acquisitions in the 2010-2021 time frame and expanded operations. In January 2022, it closed the acquisition of Texas Country Water in Comal, TX. The deal added more than 1,900 water and wastewater customers to the existing customer base. This has been the fourth Texas acquisition by SJW Group in the past 12 months. In the next five years, the company plans to invest $1.5 billion to further strengthen its infrastructure.
The Zacks Consensus Estimate for SJW Group's 2022 and 2023 earnings implies year-over-year growth of 15.3% and 6.6%, respectively. The current dividend yield of the company is 1.8%.
In the six years ended Dec 31, 2021, Essential Utilities expanded utility operations by completing many water and wastewater acquisitions, which, in turn, added 94,000 customers. In the first nine months of 2022, WTRG completed two acquisitions, which added 19,175 customers. Essential Utilities plans to invest $3 billion from 2022 through 2024 to fortify operations and efficiently serve the expanding customer base.
Essential Utilities’ long-term earnings growth is currently pegged at 6.2%. The current dividend yield of the company is 2.4%. The Zacks Consensus Estimate for WTRG's 2022 and 2023 earnings implies year-over-year growth of 6.6% and 6.5%, respectively.
Price Performance
Shares of AWK have gained 0.5% in the past month against the industry’s 0.9% decline.
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Zacks Rank
American Water Works currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
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