American Water Works Company, Inc.AWK announced that its subsidiary Illinois American Water's $8.5 million Metro East water distribution system project is nearing its finish. The phase one of the project was completed earlier in 2016.
Details of the Project
The first phase of the project included installation of approximately 3,500 feet of 36-inch and 4,500 feet of 24-inch ductile iron water main. The total project includes 2.6 miles of water main installation on the Front Street in East St. Louis.
In the phase two of the project, about 2,500 feet of 16-inch ductile iron water main will be installed. Additionally, the company has also line about 3,700 feet of 24-inch existing water main with 20-inch fusible PVC water main. The lining of the existing water main instead of its replacement is to reduce costs for customers and prevent unnecessary disruption to surrounding infrastructure.
On completion of the phase two's installation, Illinois American Water will conduct water flow and water quality tests to ensure proper standards. Barring unforeseen circumstances, the project is scheduled to be over by the end of July.
Necessity of Investment
The water infrastructure in the U.S. has aged over time and is quite old and almost outdated. Therefore, the water utility operators are investing on a regular basis to upgrade and improve the quality of their existing infrastructure. American Water Works has set a total capital investment budget of $1.5 billion, with $1.3 billion directed toward its water and wastewater system improvements and upgrades. The company also wants to invest $6.7-$7.3 billion from 2017 through 2021. This will help it to improve earnings by 7%-10% per year in the aforesaid period from 2015.
In this line, American Water Works Company announced in Apr 2017, that its subsidiary, Pennsylvania American Water, will invest $8.5 million in 2017 to refurbish 10 of its existing water storage tanks and erect four new storage structures. (Read more: American Water Unit to Invest $8.5M to Upgrade Water Storage )
Investment Through Acquisitions
As the largest investor-owned U.S. water and wastewater utility company, apart from improving its water infrastructure, American Water Works is very active in the acquisition front. In 2016, the company has added approximately 42,000 new customers through acquisitions and is expecting to gain another 40,000 in 2017 through similar deals at hand.
Illinois American Water acquired Village of Sadorus water system for $240,000. The Village of Sadorus' Board voted in favor of the sale in April 2016 with the Illinois Commerce Commission (ICC) approving it in Mar 2017. (Read more: American Water Sustains Growth, Buys Sadorus Water System )
Other water utilities are also investing in the same path to establish a strong foothold in the market. In May 2017, Global Water Resources, Inc. GWRS completed the acquisition of Phoenix, AZ-based Eagletail Water Company. With this buyout, the company initiated its acquisition driven expansion strategy and more such buyouts are anticipated in coming days. (Read more: Global Water Resources Acquires Eagletail Water )
Another water utility, Aqua America Inc. WTR , is equally active in expanding its market reach through acquisitions. During the five-year period ending Dec 31, 2016, the company expanded its utility operations by completing 84 acquisitions or other growth ventures.
In the last six months, American Water Works' shares returned 11.7%, outperforming the Zacks categorized Utility-Water Supply industry's gain of 10.5%.
The company is subject to stringent regulations, fluctuating weather patterns and risk of accidents due to old and soiled pipelines which might have impacted its performance.
Zacks Rank and Other Stock to Consider
American Water Works currently carries a Zacks Rank #3 (Hold). A better ranked stock in the same space is Consolidated Water Co. Ltd. CWCO with a Zacks Rank #2(Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Consolidated Water reported a positive surprise of 63.64% in the first quarter of 2017. Its 2017 Zacks Consensus estimate moved up nearly 15.5% to $0.67 per share in the last 60 days.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportAmerican Water Works (AWK): Free Stock Analysis ReportConsolidated Water Co. Ltd. (CWCO): Free Stock Analysis ReportAqua America, Inc. (WTR): Free Stock Analysis ReportGlobal Water Resources, Inc. (GWRS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research