Aqua America Inc. WTR announced that it has entered into an agreement with the Delaware County Regional Water Quality Control Authority to acquire the municipal authority’s wastewater assets for $276.5 million. The closure of the transaction is subject to approval by the Pennsylvania Public Utility Commission.
This acquisition will add nearly 165,000 retail customers to Aqua America’s customer base that includes retail, commercial and industrial customers, along with large wholesale agreements with municipal authorities. Per the agreement, the company will also get 168 miles of combined and separate sewer mains, 14 miles of large-diameter force mains, and a 50-million gallon-per-day wastewater treatment plant that serves the western part of its service territory.
This acquisition in a way will allow the municipal authority to carry on the necessary upgrades in its infrastructure, to comply with the U.S. Environmental Protection Agency mandates, without substantially raising rates for customers.
Consolidation in Water Industry
At present, more than 53,000 water systems in the United States provide water and wastewater solutions to customers. The highly fragmented water industry creates operational challenges in meeting increasing water requirement, as it becomes difficult for small water suppliers and wastewater service providers to make regular investments for upgrading old and soiled water and wastewater lines.
During the five-year period ended Dec 31, 2018, the company had expanded utility operations by completing 64 water and wastewater system acquisitions, followed by integration of the same into existing operations. The seven pending acquisitions, on completion, will further increase its customer base by 22,600 in 2019.
In addition to Aqua America, water utilities like Global Water Resources, Inc. GWRS and American Water Works AWK are following the acquisition route to expand operations.
Water Industry Needs Investment
Per the U.S. Environmental Protection Agency, more than $743 billion is needed for U.S. water and wastewater infrastructure improvements. Investment is essential to replace and upgrade the aging water and sewage pipelines.
Aqua America has been investing consistently to strengthen its water and wastewater infrastructure, and aims to invest more than $555 million in 2019. This will be part of Aqua America’s investment target of more than $1.4 billion in the 2019-2021 time period.
American Water Works, which is active in upgrading and expanding the existing water pipelines, also showed interest in acquiring the municipal authority’s wastewater assets. It aims to invest within $8-$8.6 billion from 2019 through 2023.
Shares of Aqua America have gained 5.6% over the past three months, outperforming its industry’s 4.1% growth.
Zacks Rank and A Key Pick
Currently, Aqua America has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A better-ranked water utility stock in the same space is American States Water Company AWR, holding a Zacks Rank #2 (Buy). It delivered average positive earnings surprise of 5.91% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 6.1% and 2.4%, respectively, in the past 60 days.
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