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American Water's (AWK) West Virginia Unit Buys Water Assets

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·4 min read
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American Water Works Company AWK recently announced that its subsidiary, West Virginia American Water, has acquired Page-Kincaid Public Service District’s water distribution system. This acquisition will add 650 customers to its existing 545,000 customer base.

All small water and wastewater service providers have one thing in common — they are unable to make the necessary investments required to upgrade and maintain the aging infrastructure. As a consequence, it is difficult for them to provide adequate and reliable services to customers. Large service providers like West Virginia American Water ensure the necessary investments to maintain and upgrade the aging assets.

West Virginia American Water has already invested more than $7 million in Page-Kincaid water distribution system improvements. More improvements will be required to reduce leakage, improve water quality and provide more reliable service as customers have received extremely poor water quality in recent years.

Why Acquisition is Essential in Water Space

The U.S. water utility industry is fragmented and upgrading the aging assets to provide high-quality quality services is the need of the hour. Per Environmental Protection Agency, at present, more than 53,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers.

This highly fragmented industry creates operational challenges in meeting the requirement for replacement and adding to aging water and wastewater infrastructure. This is resulting in frequent breaks in pipelines. Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of existing water infrastructure. The breaks in the pipeline result in the wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators.

Consolidation of small water utilities will continue to play a very vital role in the water space. Acquisitions enable the bigger water companies to ensure the extension of high-quality services to customers and the investments required to upgrade old acquired assets.

Water Utilities Carry Out Acquisitions

American Water Works continues to actively expand the business through the inorganic route. From the start of the year till Nov 1, 2021, the company expanded the customer base by 7,450 through acquisitions. Its pending acquisitions (as of Nov 1), when completed, will add another 82,700 customers to the customer base. In addition to American Water Works, other water utilities like Essential Utilities WTRG, The York Water Company YORW and California Water Service Group CWT, among others, have been making acquisitions to expand operations.

California Water Service Group entered into an agreement to acquire four assets, and the deal will close after the necessary approvals. These pending acquisitions, when completed, will add up to 3,400 water connections and 4,700 wastewater connections to California Water Service Group’s customer base. The current dividend yield of CWT is 1.43%.

York Water completed three acquisitions in 2020 and expanded its certificated territory to three more municipalities. York Water further expanded operations in the United States in 2021 with the closing of major acquisitions. The current dividend yield of YORW is 1.6%.

Essential Utilities completed two acquisitions, which added 7,430 new customers. At present, there are seven pending acquisition deals, which, when completed, will add 234,075 new customers to Essential Utilities’ existing customer base. The current dividend yield of WTRG is 2.83%.

The Zacks Consensus Estimate for 2021 earnings for Essential Utilities and California Water Service Group has moved up 0.3% and 7.6%, respectively, in the past 60 days. 2021 Earnings estimates for York Water has moved up 1.6% year over year.

Price Performance

Shares of American Water have outperformed the industry in the past six months.

Zacks Investment Research
Zacks Investment Research

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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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The York Water Company (YORW) : Free Stock Analysis Report

American Water Works Company, Inc. (AWK) : Free Stock Analysis Report

California Water Service Group (CWT) : Free Stock Analysis Report

Essential Utilities Inc. (WTRG) : Free Stock Analysis Report

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