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American Water's (AWK) Arm to Invest $2M in Water Mains

American Water Works Company, Inc. AWK has announced that its unit, New Jersey American Water, will invest $2 million to replace nearly 2 miles of aging water mains in Voorhees, NJ.

New Jersey American Water will replace the old water mains installed during the 1950s with new 8-inch ductile iron mains. The proper upgrade and maintenance of water mains will ensure an adequate potable water supply to its customers.

The replacement project also includes replacing 11 fire hydrants and 111 utility-owned service lines along the pipeline route. These additional changes will ensure a better flow of water for consumers and fire-fighters during emergency situations.

Aging Infrastructure – A Concern

Per the findings of the American Society of Civil Engineers (“ASCE”), water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. Per the ASCE finding, due to the delay in essential pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States.

It is evident from the findings of ASCE that a substantial portion of the U.S. water infrastructure has aged and is nearing the end of its effective service life. The ASCE has given a D+ grade to the overall U.S. water and wastewater infrastructure. The repair and upgrade of miles of aging pipelines are essential for maintaining quality water service. A delay in repair could cause frequent disruptions in the 24x7 supply of potable water services.

Per the U.S. Environmental Protection Agency, investments of $473 billion and $271 billion are necessary to maintain and expand drinking water pipelines and wastewater pipelines, respectively, to meet demand over the next 20 years. Water infrastructure, like overhead storage tanks and water purifying units, needs maintenance at proper intervals.

Utilities Making Systematic Investment

Given the above-mentioned scenario, it is evident that systematic investments to upgrade and maintain the old infrastructure and make provisions for adding new infrastructure will assist the operators in meeting the rising customer demand. Water utilities are making systematic investments to replace and upgrade their aging infrastructure.

American Water plans to invest $14-$15 billion between 2023 and 2027 along with $30-$34 billion between 2023 and 2032 to upgrade and strengthen the existing water and wastewater infrastructure. 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 infrastructures.

California Water Service has more than $1 billion in capital expenditure planned for 2022-2024. The current dividend yield of the company is 1.8%. The Zacks Consensus Estimate for CWT’s 2023 earnings indicates year-over-year growth of 22.6%. The current dividend yield of California Water Service is 1.6%.

Essential Utilities aims to invest $3 billion through 2024 to strengthen its water and natural gas operations. The Zacks Consensus Estimate for WTRG’s 2022 and 2023 earnings indicates year-over-year growth of 6.6% and 6.5%, respectively. The long-term (three- to five-year) earnings growth of WTRG is currently pegged at 6.1%. The current dividend yield of Essential Utilities is 2.4%.

Middlesex Water plans to invest $229 million during 2022-2024 to strengthen its water and wastewater infrastructure and provide 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 10.6% and 3.9%, respectively. MSEX’s current dividend yield is 1.4%.

Price Performance

Shares of AWK have risen 11.4% in the past month compared with the industry’s 9.4% growth.


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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