Essential Utilities (WTRG) Arm Buys Union Rome Sewer System
Essential Utilities Inc. WTRG announced that its Aqua Ohio subsidiary acquired the Union Rome Sewer (URS) system for $25.5 million, adding 5,300 connections to the company’s customer base in Lawrence County, OH.
Since the URS system had been running in deficit for years, the much-needed upgrade and maintenance was delayed due to a lack of funds. This acquisition will ensure the necessary upgrade of the aging assets of the URS system. Essential Utilities arm plans to invest more than $12.7 million in the wastewater system within the next five years to meet regulatory and environmental demands.
Essential Utilities has been active on the acquisition front. It has been expanding operations through systematic acquisitions. URS system is the second-completed acquisition from Essential Utilities, followed by the March 2023 acquisition of Pennsylvania-based North Heidelberg Sewer Company.
Consolidation: A Must for Fragmented Industry
A primary headwind in the U.S. water industry is that there are too many small operators with limited financial capabilities. Due to financial constraints, the essential upgrades are, at times, deferred, causing infrastructure failure and further resulting in the wastage of precious potable water.
Per the American Society of Civil Engineers ("ASCE"), more than 50,000 community water systems and 16,000 community wastewater systems in the United States are currently providing water solutions to customers.
Per the ASCE findings, due to delays in essential pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States. Owing to the many small operators in the industry and a lack of adequate funds, essential infrastructural upgrades and repairs get delayed at times.
Acquisition of small operators by the bigger players that have more financial capabilities ensures proper maintenance and upgrade of infrastructure. Essential Utilities currently signed seven purchase agreements for eight water and wastewater systems. When completed, these acquisitions will add nearly 213,000 equivalent retail customers or equivalent dwelling units to Essential Utilities’ customer base.
Investments for Water Space
Per the U.S. Environmental Protection Agency, an estimated $744 billion in investment is necessary to maintain and expand drinking water and wastewater services to meet demand over the next 20 years. Water utilities are gradually consolidating and investing in essential upgrades to their aging assets.
Essential Utilities plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve water and natural gas systems and better serve customers using improved information technology.
Other water utilities like American Water Works AWK, California Water Service Group CWT and Middlesex Water MSEX have well-chalked-out capital investment plans to strengthen their infrastructure.
American Water Works is making regular investments to maintain its infrastructure. It aims to invest in the range of $14-$15 billion in the 2023-2027 period and $30-$34 billion for the 10 years of 2023-2032.
California Water Service plans to invest more than $725 million in capital expenditures through 2024.
Middlesex Water plans to invest $266 million during 2023-2025 to strengthen its water and wastewater infrastructure and provide services to customers in a safe, reliable and efficient manner.
Price Performance
Over the last month, Essential Utilities’ stock lost 5.2%, narrower compared with the industry’s decline of 38.7%.
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Zacks Rank
Essential Utilities 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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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
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