American Water's (AWK) New Jersey Arm Acquires Sewer Assets
American Water Works Company, Inc.’s AWK subsidiary, New Jersey American Water, announced that it has acquired the wastewater collection system of the Borough of Somerville, NJ, for $7 million. This acquisition will add nearly 3,800 customers to the company’s customer base.
Timely repairs and maintenance of aging water and wastewater infrastructure are essential to providing high-quality 24x7 services to customers. As part of the acquisition deal, New Jersey American Water plans to invest more than $9.5 million to upgrade the aging sewer infrastructure of the Borough of Somerville in the next ten years to provide high-quality sewer services to customers.
New Jersey American Water has been expanding its sewer service business in the state through systematic acquisitions. This latest acquisition is its fourth sewer system acquisition within the company’s water footprint in the last five years, adding more than 11,300 new wastewater customers.
Aging Wastewater Industry Needs Investments & Consolidation
The aging of wastewater infrastructure and delays in essential upgrades are concerns for the sewer service industry. Per the American Society of Civil Engineers (ASCE), at present, nearly 16,000 wastewater treatment systems in the United States are providing water solutions to customers. Some of the service providers are too small and have limited financial strength to carry out the essential, costly repairs on time, which leads to pipeline breakage and disruption of services and increases the possibility of contamination.
Fragmentation in the water and wastewater industry is a headwind. Large water utility companies continue to acquire small players to ensure the extension of high-quality services to customers and the investments required to upgrade old and acquired assets.
Per the U.S. Environmental Protection Agency, an investment of nearly $271 billion is necessary to maintain and expand wastewater services to meet demand over the next 20 years.
American Water Works, through its subsidiaries, is making systematic acquisitions and taking essential steps to upgrade the old infrastructure of its acquired assets. AWK has added 7,100 customers till Jun 30, 2023, by acquiring five companies. The company’s pending acquisitions (as of Jun 30, 2023), when completed, will add another 74,800 customers to its customer base. In addition, AWK has long-term investment plans to upgrade and expand its water infrastructure and serve customers efficiently.
California Water Service Group CWT, is also expanding operations through inorganic routes. In June 2023, California Water’s unit, New Mexico Water, received approval from the New Mexico Public Regulation Commission to acquire the assets of Monterey Water Company and provide regulated water utility service to Monterey’s customers.
California Water Service is expected to invest $360 million and $365 million in 2023 and 2024, respectively, to upgrade its infrastructure and efficiently serve its expanding customer base.
Essential Utilities WTRG is also making acquisitions to expand its operations. Since 2015, Essential Utilities has expanded utility operations by completing many water and wastewater acquisitions, adding 129,000 customers. The six acquisitions completed in 2023 added 11,025 customers. At present, there are four pending acquisition deals for a total purchase price of $335.8 million, which, when completed, will add 208,000 customers to its existing customer base.
Essential Utilities plans to invest $1.1 billion annually in the 2023-2025 period to further strengthen its water and natural gas operations.
Price Performance
Over the past three months, shares of AWK have lost 19.2% compared with the industry’s 14.4% decline.
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Zacks Ranks & Another Stock to Consider
American Water currently has a Zacks Rank #2 (Buy).
Another top-ranked company from the same industry is American States Water AWR, currently carrying a Zacks Rank #2.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
AWR’s long-term (three- to five-year) earnings growth rate is pegged at 6.3%. The Zacks Consensus Estimate for 2023 earnings of $2.96 per share reflects an increase of 0.3% over the past 60 days.
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
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Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
