American Water Works Company AWK recently announced that its subsidiary, Illinois American Water, has acquired the water and wastewater system assets of Village of Hardin, IL. This acquisition will add 435 water and 405 wastewater customers to the company’s existing 1.3 million customers.
This acquisition has further expanded Illinois American Water’s operations in Illinois and is worth $3.3 million. American Water’s unit has committed to invest $3 million to improve the existing water and wastewater infrastructure of Village of Hardin and ensure high-quality services to its customers.
Illinois American Water has been expanding operations in Illinois through acquisitions. Since 2020, Illinois American Water added nearly 26,000 new customer connections to its customer base across Illinois through acquisitions. The company has made plans and will implement the same to improve water and wastewater services for its new customers.
Acquisitions in Fragmented Water Industry
The U.S. water and wastewater industry is quite fragmented. A substantial portion of infrastructure utilized to provide services has aged and is near the end of effective service life. Delays in repair lead to pipeline breaks and wastage of valuable resources.
Per Environmental Protection Agency, at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. 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 existing water infrastructure. The breaks in the pipeline result in wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators.
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. In 2021, the company expanded its customer base by 20,000 through 23 closed acquisitions in six states.
Other companies in the water industry, expanding operations through acquisitions are Essential Utilities WTRG and California Water Service Group CWT.
During the six-year period ended Dec 31, 2021, Essential Utilities expanded utility operations by completing many water and wastewater acquisitions, which, in turn, added 94,000 new customers. In the first quarter of 2022, the company completed one acquisition, which added 11,000 customers.
Essential Utilities’ long-term earnings growth is currently pegged at 6.1%. The Zacks Consensus Estimate for WTRG’s 2022 earnings implies year-over-year growth of 6.6%.
California Water Service recently received approval to acquire the water system assets of Skylonda Mutual Water Company. The acquisition is scheduled to close later this year, subject to customary closing conditions. In April 2022, another unit of California Water Service, New Mexico Water Service, closed the acquisition of Animas Valley Land and Water, LLC’s Morningstar Water System, which added 2,000 water connections.
The Zacks Consensus Estimate for California Water Service’s 2023 earnings implies year-over-year growth of 9.3%.
Shares of AWK have gained 7.6% in the past month compared with the industry’s 7.4% rally.
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Zacks Rank & Key Pick
American Water currently has a Zacks Rank #2 (Buy). Another top-ranked stock in the same space is Consolidated Water Co Ltd. CWCO currently having a Zacks Rank #2.
Consolidated Water delivered an average surprise of 36.5% in the last four quarters. The Zacks Consensus Estimate for Consolidated Water’s 2022 earnings has moved up by 26.4% to 67 cents in the past 60 days.
Consolidated Water’s long-term earnings growth is currently pegged at 8%. The current dividend yield of the CWCO is 2.4%.
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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