American Water's (AWK) Missouri Arm Gets Nod for Rate Hike
American Water Works Company AWK announced that its subsidiary Missouri American Water has received approval from the Missouri Public Service Commission to increase water and wastewater rates from May 2021. The rate revision will take into consideration nearly $620 million invested by the company since 2017-end to improve the quality of water and wastewater services.
Missouri American Water provides services to nearly 1.5 million customers in Missouri. Due to this rate revision, most residential water customers will see no change or a slight decrease in their total monthly bill, while most residential wastewater customers will witness a small increase of about $3-$5 in their monthly bill.
Rate Hike is Essential
Utilities have to ensure that the water mains, distribution pipelines, storage tanks, pumps, desalination units and other infrastructure units are working in sync to provide desirable services to customers. Maintaining and upgrading the water and wastewater infrastructure will require a large amount of investment.
Per the Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain, and expand drinking water as well as wastewater services to meet demand over the next 20 years. American Water 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 plans to invest $3 billion through 2023 to fortify operations and efficiently serve the expanding customer base. These utilities need rate revisions at regular intervals to recoup the investments made for infrastructure additions and upgrades to provide quality services to customers. Infrastructure additions and maintenance are a continuous process. Rate hikes at intervals allow utilities to continue with infrastructure spending as they have funds at their disposal.
Price Performance
Shares of American Water have outperformed the industry in the past 12 months.
Zacks Rank & Key Picks
The company currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same industry are California Water Service Group CWT and Veolia Environnement SA VEOEY, each 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 and Veolia Environnement currently have a dividend yield of 1.64% and 1.47%, respectively. The Zacks Consensus Estimate for 2021 earnings per share of California Water Service has moved up 3.5% in the past 60 days. The Zacks Consensus Estimate for 2021 earnings per share of Veolia Environnement indicates year-over-year growth of 695.5%.
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