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American Water's Arm to Invest $6.8M to Improve Water System

Zacks Equity Research

American Water Works Company AWK announced that its subsidiary New Jersey American Water is going to invest nearly $6.8 million to replace nearly 23,000 feet of aging water main throughout Monmouth County this winter. In addition, the company will replace 23 fire hydrants and up to 250 utility-owned service lines along the pipeline routes. The water mains that are going to be replaced were installed in 1920s.

This investment comprises a small portion of the multi-billion-dollar investments planned by the firm over the next five years. Investments are essential to strengthen the existing aging water system and make the systems more resilient to potential disruptions in the future.

Aging Water Infrastructure a Concern
 
Per an American Water Works Association report, more than 200,000 water lines break per year in the United States, resulting in 7 billion gallons of water leaking out of aging pipes. Hence, it is absolutely essential to replace and upgrade the old water system to prevent the wastage of precious water.

American Water aims to invest within $8-$8.6 billion from 2019 through 2023 to strengthen and expand its existing water infrastructure. Apart from American Water, water utilities like Aqua America Inc. WTR announced that it is going to invest nearly $550 million in 2019 to strengthen its 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 Can Support the Water Industry

The U.S. water industry is highly fragmented and creates operational challenges for small operators. At present, more than 53,000 water systems in the United States are providing water solutions to customers. Only 7% of the country’s systems serve a population of more than 10,000 and a mere 1% of the systems serve in excess of 100,000 people. Acquisition of small water utilities by bigger companies is ensuring the extension of high-quality services to customers and upgrade of assets of small service providers. Generally, large water utilities have better financial strength to carry out the necessary investments.

American Water, which is one of the most active players in the water space, has already completed a few acquisitions in 2019. In addition to American Water, Global Water Resources, Inc. GWRS, among other water utilities, is following the acquisition route to expand operations.

Price Performance

Shares of American Water have outperformed the industry in the past 24 months.

 


Zacks Rank and Another Key Pick

Currently, American Water has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another top-ranked water utility is The York Water Company YORW, carrying a Zacks Rank of 2.

The York Water Company delivered average positive earnings surprise of 2.3% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 1.8% and 0.9%, respectively, in the past 30 days.

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