American Water's Pennsylvania Arm Buys Wastewater Systems

American Water Works Company AWK announced that its subsidiary, Pennsylvania American Water has closed the acquisition of the wastewater assets of the Borough of Kane Authority in McKean County. This acquisition will add 2,100 wastewater customers to the company’s existing customer base in Pennsylvania. American Water’s unit has acquired the wastewater systems for $17.5 million.

Pennsylvania American Water currently provides reliable water and wastewater services to more than 2.4 million residents in Illinois. Through this acquisition, American Water Works’ unit will extend high-quality wastewater services to new customers in Pennsylvania, where it has been providing potable water services for the past 100 years.

Importance of Wastewater Services

The U.S. water and wastewater infrastructure is aging and gradually advancing toward the end of effective life. As a consequence, thousands of line breaks are reported each year in the United States, which increase the risk of contamination of the water supplied.    

A well-maintained wastewater system will aid in ensuring clean rivers, aquifers and other water sources. Even though water utilities are spending on a regular basis to upgrade and replace the old infrastructure, the amount is well short of the actual requirement. Moreover, fragmentation in the water space is a persistent headwind. Small water and wastewater service providers lack the necessarily financial strength to carry out regular and costly overhaul.

Consolidation Can Support Water Industry

Given the fragmented water and wastewater suppliers in the United States, acquisition and consolidation of small suppliers under the leadership of a big water utility can provide a solution. As it is, 50,000 water and 15,000 wastewater operators are currently providing services in the United States.

American Water Works is quite active in acquiring small service providers. As of Jul 31, 2020, the company completed 13 acquisitions in six states, 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 to its existing customer base. American Water Works has been investing regularly to strengthen water and wastewater infrastructure. American Water Works has plans to invest $8.8-$9.4 billion in the 2020-2024 time period and $20-$22 billion in the next decade.

Other water utilities like California Water Service Group CWT and Global Water Resources, Inc. GWRS are also taking the inorganic route to expand operations in the United States, as well as making investments to upgrade infrastructure. 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. The company aims to invest more than $2.8 billion over the 2020-2022 time period to rehabilitate and strengthen water, as well as gas infrastructure.

Price Performance

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

Zacks Rank

Currently, the company has a Zacks Rank #2 (Buy). 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
Global Water Resources, Inc. (GWRS): Free Stock Analysis Report
Essential Utilities Inc. (WTRG): Free Stock Analysis Report
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