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American Water's Unit Acquires Charlestown Water for $13.4M

Zacks Equity Research

American Water Works Company AWK announced that its unit, Indiana American Water has acquired Charlestown Water, a municipal water utility located in southern Indiana, for $13.4 million. This acquisition will add nearly 2,900 water customers to its existing customer base.

Indiana American Water, through its existing distribution network, serves nearly 1.3 million people in Indiana. The said acquisition will expand the existing customer base and allow the company to render quality services to new customers at a reasonable cost.

Why Consolidation is Essential in Water Space?

The water and wastewater infrastructure in the United States is aging, and gradually nearing the end of its effective life. At present, more than 53,000 water systems in the United States provide water solutions to customers. The highly fragmented water industry creates operational challenges in meeting increasing requirement for water.

Hence, consolidation in this highly fragmented industry is crucial and of utmost importance. Large water companies are trying to acquire small water utilities and impart high-quality services. American Water, which is one of the most active players in the water space, continues to widen its market reach through acquisitions. It has already completed a few acquisitions in 2019 and the pending ones, on completion, are expected to add nearly 61,000 customers to its customer base during the year.

Apart from American Water, water utilities like Global Water Resources, Inc. GWRS and Aqua America WTR have been pursuing acquisitions. Consolidation will help improve the quality of water and wastewater services provided to the company’s expanding customer base.

Rising Interest in Water Space

Since the existing water and wastewater infrastructure in the United States is aging, proper maintenance and upgradation of the system will require investment of billions of dollars, which becomes difficult for small water utilities to make arrangement for. Per an American Water Works Association (“AWWA”) report, the cost of restoring aging underground water pipelines in the United States will be at least $1 trillion in the next 25 years. American Water aims to invest within $8-$8.6 billion from 2019 through 2023, which will help improve earnings by 7-10% per year in the aforesaid period from a 2017 base.

Therefore, there is a high scope of growth in the water utility space from the present level. Moreover, demand for potable water and wastewater services is steadily increasing, thereby creating ample opportunities for growth and expansion of the industry.

In order to ride on the expected growth in the water industry, we can notice that companies like Eversource Energy ES are venturing in the water space through acquisitions.
 
Rank and Price Performance
 
Currently, American Water has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of American Water have outperformed the industry in a year’s time.



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