American Water's (AWK) Missouri Arm Buys Wood Heights Assets
American Water Works Company AWK announced that its unit, Missouri American Water, has completed the acquisition of Wood Heights water and wastewater systems in Ray County, MO. This acquisition aligns with American Water Works' growth strategy to expand operations through inorganic means. This acquisition will add nearly 260 water customers and 190 wastewater customers to Missouri American Water’s existing customer base.
Since a majority of the existing water and wastewater infrastructure is aging, regular investments are essential for upgrades and maintenance. Large operators like American Water Works, after acquiring small assets, invest in the acquired company’s assets to ensure new customers receive reliable service. Missouri American Water plans to invest $2 million in water and wastewater system improvements for Wood Heights over the next five years.
Fragmented Industry Creates Bottlenecks
A primary headwind in the U.S. water industry is that there are too many small operators with limited financial capabilities. Due to financial constraints, the essential upgrades are, at times, deferred, causing infrastructure failure and resulting in the wastage of precious potable water.
Due to many small operators in the business, essential maintenance and upgrades get delayed, disrupting operations. Per the American Society of Civil Engineers ("ASCE") findings, due to the delay in essential pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States.
The consolidation of smaller operators under the large players will ensure proper maintenance and upgrade of water and wastewater infrastructure. American Water Works is quite active in acquiring small units in its service territories as well as expanding operations. As of Mar 31, 2023, the company completed five acquisitions in two states, adding 1,400 new customers.
Systematic Investments Essential for the Water Space
Per the U.S. Environmental Protection Agency, an estimated investment of $744 billion is necessary to maintain and expand drinking water and wastewater services to meet demand over the next 20 years. Water utilities are gradually consolidating and investing in essential upgrades to maintain aging assets.
AWK is making regular investments in maintaining its infrastructure. It aims to invest in the range of $14-$15 billion in the 2023-2027 period and $30-$34 billion from 2023 to 2032.
Other water utilities like Essential Utilities WTRG, California Water Service Group CWT and Middlesex Water MSEX have well-chalked-out capital investment plans to strengthen their infrastructure.
Essential Utilities plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve water and natural gas systems and better serve customers using improved information technology.
California Water Service plans to invest more than $725 million in capital expenditures through 2024.
Middlesex Water plans to invest $266 million during 2023-2025 to strengthen its water and wastewater infrastructure and provide services to customers in a safe, reliable and efficient manner.
Price Performance
Over the past month, American Water Works’ stock has gained 6.1% against the industry’s 32.5% decline.
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Zacks Rank
American Water Works 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
