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American Water's (AWK) New Jersey Arm to Invest in Upgrades

American Water Works Company Inc. AWK announced that its unit, New Jersey American Water, will invest $5 million to replace nearly 7,300 feet of aging water mains and 2,450 feet of aging wastewater mains in Ocean City, NJ.

Along with replacing old mains, the project will replace 11 fire hydrants and 250 utility-owned service lines along the pipeline route. The proper maintenance of water and wastewater mains will ensure adequate water supply and proper sanitizing services for the company’s customers.

New Jersey American Water has been upgrading and maintaining its water and wastewater infrastructure. The company has been methodically replacing old water mains. It plans to remove all lead and galvanized service lines by 2031 and provide high-quality services to 2.8 million people in the state.

Aging Infrastructure Needs Upgrade

A substantial portion of the U.S. water and wastewater infrastructure has aged and is nearing the end of effective service life. The repair and upgrade of miles of aging pipelines are essential to maintain quality water services. A delay in repair could cause frequent disruptions in the 24x7 supply of potable water and sewer services.

Per the U.S. Environmental Protection Agency, investments of $473 billion and $271 billion are necessary to maintain and expand drinking water pipelines and wastewater pipelines, respectively, to meet the demand over the next 20 years.  Water infrastructure, like storage tanks and water purifying units, need maintenance at proper intervals.

Utilities Making Systematic Investment

Given the above-mentioned scenario, it is evident that systematic investment to upgrade and maintain the old infrastructure and make provisions for adding new infrastructure will assist the operators in meeting the rising customer demand. The water utilities are making systematic investments to replace and upgrade their aging water infrastructure.

American Water plans to invest $13-$14 billion during 2022-2026, and $28-$32 billion between 2022 and 2031 to upgrade and strengthen the existing water and wastewater infrastructure. Water utilities like California Water Service Group CWT, Essential Utilities WTRG and Middlesex Water MSEX have well-chalked-out capital investment plans to strengthen their infrastructures.

California Water Service has more than $1 billion in capital expenditure planned for 2022-2024. The current dividend yield of the company is 1.8%. The Zacks Consensus Estimate for CWT’s 2023 earnings indicates year-over-year growth of 12.4%. The current dividend yield of California Water Service is 1.7%.

Essential Utilities aims to invest $3 billion through 2024 to strengthen water and natural gas operations. The Zacks Consensus Estimate for WTRG’s 2022 earnings indicates year-over-year growth of 6.6%. The long-term (three to five years) earnings growth of WTRG is currently pegged at 6.1%. The current dividend yield of Essential Utilities is 2.5%.

Middlesex Water plans to invest $229 million during 2022-2024 to strengthen its water and wastewater infrastructure for providing services to customers in a safe, reliable and efficient manner. The Zacks Consensus Estimate for MSEX’s 2022 and 2023 earnings indicates year-over-year growth of 15.5% and 10.5%, respectively. MSEX reported an average surprise of 2.02% in the last four quarters.

Price Performance

Shares of AWK have risen 12.2% in the past three months compared with the industry’s 13.1% growth.


Zacks Investment Research
Zacks Investment Research

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Zacks Rank

American Water 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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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
California Water Service Group (CWT) : Free Stock Analysis Report
Middlesex Water Company (MSEX) : Free Stock Analysis Report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
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