American Water Works Company AWK announced that its unit, New Jersey American Water, has acquired the water assets of Roxbury Water Company in Morris County, NJ. The company is yet to disclose financial consideration of the buyout. This latest acquisition will increase the customer base of New Jersey American Water by 4,000.
New Jersey American Water, through its existing distribution network, serves more than 2.7 million people. The said acquisition will allow the company to render quality services to new customers at a reasonable cost.
Consolidation Helps the Water Industry
The existing water infrastructure in the United States is aging, and proper maintenance and upgradation of the system will require investment of billions of dollars, which becomes difficult for small water utilities to make arrangement for. Per a new report from Bluefield Research, more than $638 billion will be needed to be invested over the next decade to upgrade the existing water and wastewater assets of the United States.
A study from Utah State University showed that overall water main break over the past six-year period has gone up 27% in the United States and Canada. The primary reasons behind water main failure are the aging water infrastructure and higher failure rates of smaller water utilities compared with larger ones.
Hence, consolidation in the largely fragmented water utility space enables large water service providers for carrying out the much needed investments to upgrade the old and soiled water pipelines, and main lines.
Investments to Strengthen Infrastructure
Large water utilities continue to invest in upgrading as well as maintaining their existing water and wastewater infrastructure. The water utilities also undertake initiatives to upgrade the systems of the newly-acquired assets and the quality of services.
American Water Works aims to invest within $8-$8.6 billion from 2019 through 2023, which will help it to improve earnings by 7-10% per year in the aforesaid period from a 2017 base. Another water utility, Aqua America WTR aims to make capital investment in excess of $1.4 billion over the 2018-2020 time period.
In the past 12 months, shares of American Water have gained 1.4% againist its industry's decline of 1.4%.
Zacks Rank and Other Key Picks
Currently, American Water has a Zacks Rank #2 (Buy). Other top-ranked stocks from the same industry include Middlesex Water Company MSEX, sporting a Zacks Rank #1 (Strong Buy), and American States Water Company AWR, carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Middlesex Water Company surpassed third-quarter earnings estimates by 13.85%. The Zacks Consensus Estimate for 2019 earnings has moved 10.2% north to $2.05 per share over the past 60 days.
American States Water surpassed third-quarter earnings estimates by 3.33%. The consensus estimate for 2019 bottom line has moved 3.1% north to $2.00 per share over the past 60 days.
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