California Water Service Group’s CWT unit, California Water Service, has received regulatory approval from the California Public Utilities Commission to acquire the water system assets of Skylonda Mutual Water Company. The acquisition is scheduled to close later this year, subject to customary closing conditions.
The acquisition of Skylonda Mutual Water’s assets will add 176 customers to California Water Service’s existing customer base in California.
Following the agreement's completion, the unit will provide water services for Skylonda Mutual Water Company customers via the Bear Gulch District. California Water Service will also invest in Skylonda's water system infrastructure to maintain and upgrade its services to better serve customers.
Strengthening Operations via Acquisitions & Investments
California Water Service’s customer base increased year over year by 0.8% in 2021. CWT is making steady efforts to expand operations either organically or inorganically and its customer base is likely to continue witnessing this uptrend in 2022.
Before this acquisition, in April 2022, California Water Service’s another unit, New Mexico Water Service, closed the acquisition of Animas Valley Land and Water, LLC’s Morningstar Water System, which further added 2,000 water connections to the existing customer base.
The aging of the water and wastewater pipelines is currently a big concern for the industry and requires consistent investments to maintain and upgrade infrastructure. California Water Service invested $293.2 million in 2021 and $68.5 million in the first three months of 2022. The utility also expects to invest $1,080 million in the 2022-2024 period for upgrading infrastructure.
Zacks Rank & Price Performance
California Water Service presently has a Zacks Rank #4 (Sell). In the past month, shares of CWT have rallied 6.5% compared with the industry’s rise of 0.9%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Acquisitions by Water Utilities
Per Environmental Protection Agency, at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions for customers. The highly fragmented water industry creates operational challenges as a large portion of water and wastewater infrastructure is nearing the end of an effective service life.
The acquisition of small units by larger utilities ensures necessary investments for the upgrade of infrastructure and the continuation of high-quality services for customers. Some companies in the water industry expanding operations through acquisitions are American Water Works AWK, Essential Utilities WTRG and Consolidated Water CWCO.
American Water Works continues to widen its market footprint through strategic acquisitions. In 2021, the company expanded its customer base by 20,000 through 23 closed acquisitions in six states.
American Water Works’ long-term (three to five years) earnings growth is currently pegged at 8.1%. The Zacks Consensus Estimate for AWK’s 2022 earnings implies year-over-year growth of 5.2%.
During the six years ended Dec 31, 2021, Essential Utilities expanded utility operations by completing many water and wastewater acquisitions, which, in turn, added 94,000 new customers. In the first quarter of 2022, the company completed one acquisition, which added 11,000 customers.
Essential Utilities’ long-term earnings growth is currently pegged at 6.1%. The Zacks Consensus Estimate for WTRG’s 2022 earnings implies year-over-year growth of 7.2%.
Consolidated Water acquired 100% interest in Aerex Industries, Inc., a U.S. original equipment manufacturer and service provider of a wide range of products and services for industrial water treatment. Consolidated Water also acquired 51% of PERC Water Corporation, a water infrastructure provider, which expanded CWCO’s product offerings and presence in the United States. These acquired units continue to boost the company’s performance and expand the customer base.
Consolidated Water’s long-term earnings growth is currently pegged at 8%. The Zacks Consensus Estimate for Consolidated Water’s 2022 earnings implies year-over-year growth of 191.3%.
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