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American Water's (AWK) New Jersey Arm to Acquire Assets

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·4 min read
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American Water Works Company AWK announced that its subsidiary, New Jersey American Water, has signed an agreement to acquire water and wastewater assets of Egg Harbor City, NJ. This acquisition will increase American Water’s unit customer base by 3,000. The company will pay $21.8 million to acquire the assets. The acquisition is expected to be completed by second-quarter 2021, subject to necessary approvals.

The acquisition will pave way for the necessary investments to upgrade the water and wastewater assets of Egg Harbor City. Per the agreement, New Jersey American Water will invest $14 million in the first 10 years, including $9 million in the first five years, while keeping rates stable for customers.

New Jersey American Water currently provides reliable water and wastewater services to more than 2.8 million people in its service territories.

Consolidation Essential in Water Space

Aging of assets and fragmentation are the primary concerns of the existing U.S. water and wastewater industry. Per an American Water report, more than 53,000 water systems in the United States are providing water solutions to customers at present, which creates operational challenges in meeting the requirement for replacement, and modification of the aging water and wastewater infrastructure. At present, only 7% of the country’s systems serve a population of more than 10,000 and a mere 1% of the systems cater to more than 100,000 people.

Per the Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years.

American Water is quite active in acquiring small service providers. In 2020, it successfully closed 23 acquisitions via adding 37,800 customers to the customer base and expanding operations in the United States. The pending 27 acquisitions (as of Jan 31), when completed, will add another 29,800 customers to the customer base. The company is making regular investments to upgrade the existing and acquired assets. American Water has plans to invest $10.4 billion in the 2021-2025 time period and $22-$25 billion in the next decade.

Likewise, another water utility, Essential Utilities WTRG has not only expanded water and wastewater operations through acquisitions but also ventured into the natural gas distribution business through the acquisition of Peoples. The company plans to invest $3 billion through 2023 to fortify operations and efficiently serve the expanding customer base. Another water utility, Global Water Resources, Inc. GWRS is also taking the inorganic route to expand operations in the United States and making investments to upgrade infrastructure.

Price Performance

Shares of American Water have outperformed the industry in the past 12 months.

Zacks Rank & A Key Pick

The company currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is California Water Service Group CWT, currently having a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

California Water Service currently has a dividend yield of 1.64%, which is better than the industry average. The Zacks Consensus Estimate for 2021 and 2022 earnings per share of the company has moved up 3.5% and 6.8%, respectively, in the past 60 days.

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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report

California Water Service Group (CWT) : Free Stock Analysis Report

Global Water Resources, Inc. (GWRS) : Free Stock Analysis Report

Essential Utilities Inc. (WTRG) : Free Stock Analysis Report

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