American Water Works' (AWK) Arm to Buy Sewer Assets for $28M
American Water Works AWK announced that its subsidiary Pennsylvania American Water has signed an asset purchase agreement worth $28 million for the wastewater system assets of the Elizabeth Borough Municipal Authority. This wastewater system presently serves nearly 2,200 customers.
The aging of crucial water and wastewater infrastructure is concerning for the United States water industry. Pennsylvania American Water’s prime concern is to deliver safe, reliable and affordable wastewater services to its customers.
The company is devoted to making the required capital investments while keeping the rates stable. It has committed to invest more than $20.4 million by 2028 in improving the system’s reliability and security of the acquired assets. Subject to necessary approval, this acquisition is expected to close by the end of 2023 or early 2024.
Water Industry Needs Consolidation
According to the Environmental Protection Agency, more than 50,000 community water systems and 16,000 community wastewater systems in the United States are currently providing water solutions to customers. Due to a large number of small operators in the industry and a lack of adequate funds, essential upgrades and repairs of infrastructure get delayed at times.
The acquisition of small units by larger utilities ensures necessary investments in infrastructure upgrades and the continuation of high-quality services to customers. American Water Works is the largest and most geographically diverse publicly traded water and wastewater utility company, which 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. The company added 51,000 customers to its existing customer base through 15 closed acquisitions.
AWK’s pending acquisitions (as of Sep 30, 2022), when completed, will add another 21,600 customers to the customer base. As of Sep 30, 2022, through 15 closed acquisitions, the company added 65,300 customers to its existing customer base.
Other water utilities like SJW Group SJW, Consolidated Water Co. CWCO and Essential Utilities WTRG in the water utility space are expanding operations through systematic acquisitions.
SJW Group completed more than 25 acquisitions in the 2010-2021 time frame and expanded its operations. The company made systematic acquisitions in 2022 to further expand its operations. In January 2023, SJW’s Texas subsidiary entered into an agreement to acquire KT Water Development Ltd. and KT Water Resources L.P., which will add 550 customers to the company’s existing base.
The Zacks Consensus Estimate for SJW Group's 2022 and 2023 earnings implies year-over-year growth of 15.3% and 6.4%, respectively. The current dividend yield of the company is 1.9%.
Consolidated Water has recently exercised its right to acquire the remaining 39% of PERC Water Corporation's ("PERC") equity, for nearly $7.8 million. PERC’s strong operating performance, revenue growth and profitability, as well as its synergies with other areas of CWCO’s business and future growth prospects, are going to boost CWCO’s performance.
The Zacks Consensus Estimate for CWCO's 2022 and 2023 earnings implies year-over-year growth of 143.5% and 62.5%, respectively. The current dividend yield of the company is 2.4%.
In 2022, Essential Utilities acquired three water and wastewater systems, added nearly $120 million in rate base and added more than 23,000 new customers to its existing customer base. At present, WTRG has signed seven purchase agreements on closure, which will expand its customer base by nearly 218,000.
The Zacks Consensus Estimate for WTRG's 2022 and 2023 earnings implies year-over-year growth of 6.6% and 6.5%, respectively. The current dividend yield of the company is 2.5%.
Over the last three months, American Water Works’ stock has returned 10.7%, outperforming the industry average of 6.4%.
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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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