American Water's (AWK) Pennsylvania Arm to Invest in Upgrades
American Water Works AWK announced that its unit, Pennsylvania American Water, would invest $2.2 million to upsize three miles of small, aging water mains in its Butler County service areas to improve service reliability and fire protection for residents.
The aging of water mains is a primary concern for water utilities, as it can lead to leakage and breakage of water mains, disrupting operations and wasting gallons of potable water.
The Pennsylvanian unit has been upgrading and maintaining its water and wastewater infrastructure by replacing old water mains methodically and has invested nearly $490 million in 2022 for infrastructure upgrades.
Proper infrastructure maintenance allows Pennsylvania American Water to serve its 2.3 million customers more efficiently.
Aging Water Pipelines Need Upgrade
A substantial portion of water and wastewater infrastructure in the U.S. has aged and is nearing the end of its effective service life. Miles of aging pipelines essentially require repairs and upgrades to maintain quality water service. A delay in repair could cause frequent disruptions in the 24x7 supply of potable water and sewer services.
Per the ASCE report, nearly 6 billion gallons of treated water is lost each day in the United States due to water main breaks every two minutes. This wastage of potable water is no doubt increasing the cost of operation for water utilities.
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 storage tanks and purifying units, needs maintenance at proper intervals.
Investments Rolling in
Given the above-mentioned scenario, it is evident that systematic investments to upgrade and maintain the old infrastructure, as well as making provisions for adding new infrastructure, will assist the operators in meeting the rising customer demand. Water utilities are making systematic investments to replace and upgrade their aging infrastructure. The U.S. government is also providing funds to upgrade and maintain the same.
American Water Works aims to invest in the range of $14-$15 billion in the 2023-2027 period and $30-$34 billion for the 10-year period of 2023-2032. 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 also 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 using improved information technology. The Zacks Consensus Estimate for WTRG’s 2023 earnings indicates year-over-year growth of 5.1%. The long-term (three- to five-year) earnings growth of WTRG is currently pegged at 5.6%. The current dividend yield of Essential Utilities is 2.8%.
California Water Service plans to invest more than $725 million in capital expenditures through 2024. The Zacks Consensus Estimate for CWT’s 2023 earnings indicates year-over-year growth of 3.9%. The current dividend yield of California Water Service is 1.9%.
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. The Zacks Consensus Estimate for MSEX’s 2023 and 2024 revenues indicates year-over-year growth of 5.9% and 4.7%, respectively. The current dividend yield of Middlesex Water is 1.6%.
Price Performance
Shares of AWK have gained 0.8% in the past year compared with the industry’s 4.9% growth.
Image Source: Zacks Investment Research
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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
