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American Water Unit to Invest $2.7M in Pipeline Replacement

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American Water Works Company (AWK - Free Report) announced that its subsidiary, New Jersey American Water, will install nearly $2.7 million of new water mains throughout Burlington and Camden Counties.

The company aims to replace 14,000 feet of aged pipelines with ductile iron pipes. The replacement of the old pipelines is expected to be completed by Dec 31, 2016.

Maintenance & Replacement Work Continues

American Water Works, along with its subsidiaries, continues to strengthen the existing infrastructure by replacing old and damaged pipelines. Earlier this month, New Jersey American Water announced that it will install nearly $1.6 million of new water mains in Stuyvesant Avenue from Chestnut Street to Vauxhall Road in Union. (Read more: American Water Unit to Invest $1.6M in Pipeline Replacement)

For 2016, American Water Works aims to spend $1.4–$1.5 billion for improving water and wastewater systems, and the ongoing investments by its subsidiaries are part of the long-term plans of upgrading and replacing old pipelines.

Need for Investment in Water Space

All major water utilities need to make regular investments in the replacement of old and dilapidated pipelines. An Environment Protection Agency (EPA) report projects capital investment of $384.2 billion in upgrading drinking water lines and $298.2 billion in changing wastewater lines during the 2011–2030 period.

Like American Water Works, other water and wastewater service providers are investing regularly to upgrade the existing systems. Aqua America Inc. has plans to make capital investments of over $350 million in 2016 as part of an ambitious investment target of over $1.1 billion in the 2016–2018 period. Similarly, Connecticut Water Service Inc. aims to invest more than $150 million in the 2017–2019 time frame to strengthen the existing water infrastructure.

Earnings Goal & Investment Plans

American Water Works expects 2016 earnings in the range of $2.81 to $2.86 per share. Going forward, thanks to its consistent investment in regulated assets and customer additions through the inorganic route, the company aims to achieve earnings of $2.98 to $3.08 per share in 2017.

American Water Works is investing consistently to improve and expand its infrastructure. The company aims to invest $6.4 billion in the 2016–2020 time frame, which will boost its bottom line by 7% to 10% per year during this period.

Price Movement

Over the last one year, American Water Works has been underperforming the Zacks categorized Utility-Water Supply industry. During this period, the company’s shares have returned 25.8%, compared with the industry’s return of 28.4%.



The company had outpaced the industry up to September, after which its performance deteriorated. The recent interest rate hike will increase American Water Works’ cost of capital. In addition, its current ratio of 0.42 could make it difficult for the company to qualify for a loan at favorable terms.

Zacks Rank & a Key Pick

American Water Works currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is SJW Group (SJW - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SJW’s earnings surpassed the Zacks Consensus Estimate by 104.4% in the last reported quarter. Its 2016 estimates have improved 26.1% to $2.27 in the last 60 days.

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