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American Water Unit Expands Service Via $10.5M New Pipelines

Zacks Equity Research

American Water Works AWK announced that its unit Pennsylvania American Water has completed 19 miles of new water lines in the Castlewood area of Shenango Township, Lawrence County. The $10.5 million investment in new pipelines will allow the company to provide more reliable services to 700 customers.

Pennsylvania American Water had started construction of the water lines in August 2017 and completed the project this spring. The company also built a 300,000-gallon storage tank, and installed a pressure-reducing station and more than 100 fire hydrants.

Investment is Essential in Water Space

Per the U.S. Environmental Protection Agency, more than $743 billion is needed for U.S. water and wastewater infrastructure improvements. Investment is essential to replace and upgrade the aging water pipelines. An American Water Works Association report indicates more than 200,000 water lines breaks per year in the United States with more than 7 billion gallons of water leaking out of aging pipes.

American Water is quite active in upgrading and expanding the existing water pipelines. It aims to invest within $8-$8.6 billion from 2019 through 2023. The current investment target of West Virginia American Water is part of the company’s long-term investment plan. West Virginia American Water’s plans to replace water mains, repair water storage tanks, replace old water meters and improve water treatment will ensure an increase in reliability of services.

Another water utility, Aqua America Inc. WTR announced that it is going to invest more than $555 million in 2019 to strengthen water and wastewater infrastructure. This will be part of Aqua America’s investment target of more than $1.4 billion in the 2019-2021 time period.

Consolidation Crucial for Water Industry

In addition to investment from private water utility operators and the government, consolidation is necessary for the fragmented water industry. Currently, more than 53,000 water systems in the United States provide water and wastewater solutions to customers. The highly fragmented water industry creates operational challenges in meeting increasing water requirement, as it becomes difficult for small water suppliers and wastewater service providers to make regular investments for upgrading old and soiled water and wastewater lines.

American Water — which is one of the most active players in the water space — has already added 30,700 customers to the existing customer base, as of Jul 31. The pending acquisitions as of the same date, on completion, are expected to add nearly 38,200 customers to its customer base. The acquired companies lead to 3K-30K customer connections per acquisition.

In addition to American Water, water utilities like Global Water Resources, Inc. GWRS and Aqua America are following the acquisition route to expand operations.

Price Movement

In the past six months, shares of American Water have outperformed the industry.



Zacks Rank and A Key Pick

Currently, American Water has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked water utility stock in the same space is American States Water Company AWR, holding a Zacks Rank #2 (Buy). It delivered average positive earnings surprise of 5.91% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 6.1% and 2.4%, respectively, in the past 60 days.

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