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AWK to Lower Water Wastage

Zacks Equity Research

Water utility American Water Works Company Inc. (AWK) received a $1.8 million contract from the Israel-U.S. Binational Industrial Research and Development (BIRDF) Foundation to reduce the wastage of water. The company will work jointly with Steam Control Ltd. in a two-year project to lower the wastage of water.

The BIRD Foundation supports cooperation between Israeli and American companies for the exchange of technological expertise. The foundation to nurture projects like these also provides 50% of the estimated project cost. The foundation does not demand a refund of the investment if the project fails to reach the sales stage.

The program will aim to install modification in the existing pipeline. This will automatically ease the water pressure when there is a decline in demand from customers. The need to control water pressure in a system is essential as an international study showed consistent strong pressure increases the probability of leakage and failure of the pipeline systems.    

The modification introduced by American Water Works Company will vary water pressure as per demand. This will help to conserve water and lower the possibility of water leakage. The innovation is also expected to lower maintenance costs at it will reduce the occurrence of main breaks.

We believe the company’s consistent R&D efforts in improving water quality and providing water solution have helped it to clinch the BIRD contract. The company invested $2.8 million on research and development in 2012. The research supports effective usage of water thereby ensuring reliable service at reasonable rates.

American Water Works Company missed our earnings estimate in the first quarter of 2013. The company projects 2013 earnings in the range of $2.15 to $2.25 per share. We project long-term earnings growth of 8% and our earnings expectation for 2013 is presently $2.22 per share, which is near the higher end of the guidance.
American Water Works Company currently has a Zacks Rank # 3 (Hold). Other water utilities, which are doing well include American States Water Company (AWR), Aqua America, Inc. (WTR) and Middlesex Water Co. (MSEX). All of them presently carry a Zacks Rank #2 (Buy).

Voorhees, N.J.-based American Water Works Company was founded in 1886. The company serves around 14 million people with water and water related services. With 6,700 employees, the company’s market capitalization is $7.53 billion.

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