American Water's (AWK) New Jersey Arm Invests in Upgrades
American Water Works AWK announced that its unit, New Jersey American Water, would invest $3.8 million to replace one mile of the old water main in Ocean City. The company will replace aging 4 and 6-inch water lines with new 8-inch ductile iron mains. The fresh investment will improve water service reliability and increase water flow for household consumption and fire protection.
The company is committed to removing and replacing old water mains and improving the service quality for its customers.
Aging Water Industry Needs Upgrades
Per the U.S. Environmental Protection Agency, investments of $473 billion and $271 billion are necessary to maintain and expand drinking water and wastewater pipelines, respectively, to meet demand over the next 20 years. Water infrastructure, like water mains, storage tanks and purifying units, needs maintenance at proper intervals.
The repair and upgrade of other infrastructure, like overhead storage tanks, treatment plants and water reservoirs, are essential to providing uninterrupted 24x7 services to customers.
Miles of aging pipelines essentially require repairs and upgrades to maintain quality water and wastewater services. A delay in repairs could cause frequent disruptions in the 24x7 supply of potable water and sewer services. Leaks and accidents in the water mains result in the wastage of millions of gallons of potable water.
Possibility of Rate Decline to Assist Utilities
The Fed did not increase the benchmark interest rate in the last three meetings in 2023 and indicated a rate decline in 2024. Capital-intensive utilities that have long-term capital expenditures are expected to benefit from the likely decrease in interest rates in 2024.
American Water aims to invest $3.1 billion in 2024, with a significant portion utilized for infrastructure improvements in Regulated Businesses. Over the long term, it targets investing in the range of $16-$17 billion in the 2024-2028 period and $34-$38 billion in the 2024-2033 period.
Other water utilities, such as Essential Utilities WTRG and California Water Service Group CWT, have well-chalked-out capital investment plans to strengthen infrastructure.
Essential Utilities plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve the water and natural gas systems and better serve customers with the help of improved information technology.
California Water Service plans to invest more than $725 million in capital expenditure through 2024.
The Zacks Consensus Estimate for WTRG and CWT’s 2024 earnings indicates year-over-year growth of 7.4% and 17.9%, respectively.
Price Performance
Over the past three months, American Water’s stock has gained 6.9% against the industry’s 28.8% decline.
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Zacks Rank & Another Stock to Consider
American Water currently has a Zacks Rank #2 (Buy).
Another top-ranked company from the same industry is Consolidated Water CWCO. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CWCO’s long-term (three to five-year) earnings growth rate is pegged at 8%. The Zacks Consensus Estimate for 2024 earnings of $1.24 per share indicates an increase of 6.9% over 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
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Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
