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American Water (AWK) Unit Buys Town of Waverly Water System

Zacks Equity Research
·3-min read

American Water Works Company AWK recently announced that its subsidiary, Virginia American Water, has acquired the drinking water system assets of the Town of Waverly, VA. This acquisition will add 905 water customers to the company’s existing 339,000 customers.

This acquisition has expanded Virginia American Water’s operations in Virginia. This acquisition is worth $2.2 million and the American Water’s unit has committed to invest $4 million to improve the existing water infrastructure of Town of Waverly and ensure high quality water services.

Virginia American Water ensures that high quality water services are provided to its customers in Virginia and ensures regular investments to upgrade and maintain its infrastructure. In 2021, the company invested $35 million in water system improvements statewide and expects to continue the same in 2022 as well.

Fragmented Water Industry Needs Investment

The U.S. water and wastewater industry is highly fragmented and a major portion of water and wastewater infrastructure is near the end of its effective life.  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 to customers.

The aging of the water and wastewater pipelines is currently a big concern for the industry. Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. The pipeline breaks result in the wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators.

Per Environment Protection Agency, U.S water and wastewater infrastructure needs $473 billion and $271 billion, respectively, to upgrade and maintain high-quality services in the next 20 years. Since a huge investment is essential for the upgrade, investment from the government and the investor-owned utilities will be needed to address this problem.

Systematic Investment by Utilities

American Water plans to invest $13-$14 billion during 2022-2026 and around $28-$32 billion between 2022 and 2031 to upgrade as well as strengthen the existing water and wastewater infrastructure.

Other water utilities like California Water Service Group CWT, Essential Utilities WTRG and Middlesex Water MSEX have well-chalked-out capital investment plans to strengthen their infrastructure.

California Water Service has a more than $1 billion capital expenditure planned for the 2022-2024 time period. The current dividend yield of California Water Service is nearly 1.9%. The Zacks Consensus Estimate for CWT’s 2023 earnings indicates year-over-year growth of 9.3%.

Essential Utilities aims at investing $3 billion through 2024 to strengthen water and natural gas operations. The Zacks Consensus Estimate for WTRG’s 2022 earnings indicates year-over-year growth of 6.6%. The long-term (three to five years) earnings growth of WTRG is currently pegged at 6.1%. The current dividend yield of Essential Utilities is nearly 2.4%.

Middlesex Water plans to invest $229 million during the 2022-2024 period to strengthen its water and wastewater infrastructure for providing services to customers in a safe, reliable and efficient manner. The Zacks Consensus Estimate for MSEX’s 2022 and 2023 earnings indicates year-over-year growth of 28% and 7.6% respectively. MSEX reported an average surprise of 2.02% in the last four quarters.

Price Performance

Shares of AWK have declined 13.9% in the past month compared with the industry’s 11.4% decline.

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Zacks Investment Research
Zacks Investment Research


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Zacks Rank

American Water 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
 
California Water Service Group (CWT) : Free Stock Analysis Report
 
Middlesex Water Company (MSEX) : Free Stock Analysis Report
 
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
 
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Zacks Investment Research