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American Water (AWK) Unit Acquires Meadowbrook Water Company

Zacks Equity Research

California American Water, a subsidiary of water utility American Water Works Company Inc. AWK, has completed the acquisition of Meadowbrook Water Company in Merced County, after receiving necessary permission from California Public Utilities Commission.

The acquisition will add 1,700 customers to the existing base. They will be able to avail the company’s Conservation services—including rebates and free water saving devices. California American Water started providing potable water services to these customers from Apr 1, 2017.

Recent Acquisition

Last month, American Water Works’ subsidiary, Illinois American Water completed acquisition of the Village of Sadorus water system for $240,000. This will add 185 customers to the existing base in the Champaign County District. The company will serve a population of nearly 400 residents (read more:  American Water Sustains Growth, Buys Sadorus Water System)

Expansion via Acquisition

Consolidation is the need of the hour in the fragmented U.S. water utility space. The old water utility infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls for the industry at large.

American Water Works is quite active in the acquisition front and added 42,000 new customers through acquisitions in 2016. The company is expected to add another 40,000 in 2017 through the pending acquisition. The back to back acquisitions are a part of the company‘s 2017 acquisition plan.

Another water utility, Aqua America Inc. WTR, is equally active in expanding its market reach through acquisitions. In 2016, the company added 14,399 customers to its existing base through organic growth and strategic accretions. In 2017, the company expects to expand its customer base by 1.5% to 2% from 2016 levels.

Connecticut Water Service Inc. CTWS is another water utility to be pretty active in the acquisition front. Connecticut Water, like some of its peers, has been engaged in strategic acquisitions of smaller water service providers. These continue to be a major part of the utility’s growth strategy. Since 2012, acquisitions have expanded the company’s customer base by 44%.

Price Movement

In the last three months, American Water Works’ shares returned 6.8%, outperforming the Zacks categorized Utility-Water Supply industry’s increase of 4.9%.

The utility is well poised to benefit from regulated investments to strengthen existing infrastructure as well as strategic acquisition, which, in turn, is expanding customer base and providing a boost to the top line.

Zacks Rank

American Water Works currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Artesian Resources Corp. ARTNA, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Artesian Resources' 2017 Zacks Consensus Estimate moved up by 6.4% to $1.49 per share in the last 60 days.

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