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American Water Unit to Invest $65M in Infrastructure Upgrade

Zacks Equity Research

American Water Works Company AWK announced that its subsidiary, New Jersey American Water will invest $65 million to protect its Raritan-Millstone Water Treatment Plant from flooding during extreme weather conditions in the region.

The investment is a part of the company’s planned capital expenditure of $1.5 billion in 2017.

Project in Detail

The Raritan-Millstone Water Treatment Plant provides potable water to nearly 1 million customers of New Jersey American Water. This plant is located in an area which experiences severe flooding during significant storm events. These floodings are caused by the relative low ground surface elevations in the flood ways adjacent to Raritan and Millstone Rivers.

The $65 million project will raise the plant’s north flood wall by four feet, increasing its height to 48 feet, the level of flood resiliency supported by the U.S. Environmental Protection Agency and the Army Corp of Engineers.

The infrastructure upgrade, expected to be completed by Dec 2018, will also work on raising and widening the northeast berms, installing new flood gates, improving drainage mechanisms, installing a new low lift pump station and replacing emergency generators.  

All these upgrade and additions will be made to the existing treatment plant to improve the resilience of the plant and ensure clean and reliable water service even during the difficult weather conditions in the region.

Maintenance Work is On
The company, along with its subsidiaries, continues to strengthen the existing infrastructure by replacing old and damaged pipelines. During first week of this month, the company announced that its subsidiary, New Jersey American Water, will invest in excess of $2.5 million to install new water mains within Rumson and under the Shrewsbury River in Rumson and Sea Bright. (read more:American Water Unit Invests $2.5M for Infrastructure Upgrade)

Water Industry Needs Consistent Investment

The overall water infrastructure in the U.S. is quite old and almost at the end of its life. Some of the water mains are nearly a century old and require immediate replacement.  In addition, the increase in customers  requires addition of new water mains. Hence, all big operators in this fragmented water utility space are investing on a regular basis to upgrade and improve the quality of their existing infrastructure.

American Water Works aims to invest $6.7–$7.3 billion from 2017 through 2021. In the past couple of months, the company has been very active on expanding operations through acquisitions and upgrading its existing infrastructure.  The company provides water and waste water services to nearly 15 million customers.

Aqua America Inc. WTR, another utility, has plans to make capital investments of over $450 million in 2017 as part of an ambitious investment target of over $1.2 billion in the 2017-2019 period. Connecticut Water Service Inc. CTWS aims to invest more than $150 million in the 2017–2019 time frame to strengthen its existing infrastructure.

Price Movement

In the last three months, American Water Works’ shares have returned 11.3%, outperforming the Zacks categorized Utility-Water Supply industry’s increase of 7.7%.

The utility is well poised to benefit from strategic acquisition and regulated investments to strengthen existing infrastructure, 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). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company is a consistent performer and has surpassed Zacks Consensus Estimates in three out of the last four quarters, resulting in an average beat of 3.43%.

A better-ranked stock in the same space is Artesian Resources Corporation ARTNA, currently having  a Zacks Rank #2 (Buy).

Artesian Resources Corporation’s 2017 Zacks Consensus Estimate moved up by 2.1% to $1.49 per share in the last 60 days.

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