American Water's (AWK) Arm to Buy Page-Kincaid Water System

American Water Works Company AWK announced that its subsidiary, West Virginia American Water has entered into an agreement with Page-Kincaid Public Service District to acquire the community’s water system, which will add 650 new customers to its existing customer base.

West Virginia American Water provides reliable water and wastewater services to more than 565,000 residents in California. Through this acquisition, American Water Works’ unit will extend high-quality services to new customers. The people of Page-Kincaid have been suffering from inadequate water supply and service for a long time.

American Water Works has been very active in acquiring small water and wastewater service providers, as well as expanding operations. As of Jul 31, 2020, the company completed 13 acquisitions, which added 10,800 customers to the existing customer base. The remaining 28 acquisitions as of Jul 31, 2020, when completed, will add more than 43,600 customers.

Why Consolidation is Important in Water Space?

The role of consolidation becomes extremely vital in the water utility space, as it is extremely difficult for small service providers to invest a large sum to upgrade and repair old water mains. As it is, 50,000 water and 15,000 wastewater operators are currently providing services in the United States. Some of these operators are not large enough to accommodate the infrastructure upgrade expenses.

The U.S. water and wastewater infrastructure is ageing and gradually approaching toward the end of service life. Billions of gallons of potable water are lost in the United States every year due to thousands of pipeline breaks across the country on a daily basis, with the primary reason being delay in replacing old and soiled water as well as wastewater pipelines. The pipeline breaks also increase the possibility of potable water contamination.

Hence, large water utilities are actively acquiring small water and wastewater service units, as well as ensuring investments to upgrade the quality of services. American Water Works is quite active in acquiring small service providers. Global Water Resources, Inc. GWRS is also taking the inorganic route to expand operations in the United States. Another water utility, Essential Utilities WTRG not only expanded water and wastewater operations through acquisitions but also ventured into the natural gas distribution business through the acquisition of Peoples.

Price Performance

Shares of American Water have outperformed the industry in the past 12 months.

Zacks Rank and Key Pick

Currently, the company has a Zacks Rank #3 (Hold). A better-ranked water utility is American States Water Company AWR, which holds a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American States Water delivered an average earnings surprise of 0.2% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 0.9% to $2.29 per share in the past 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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