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AWK Expands Further in Pennsylvania

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American Water Works Company’s (AWK - Free Report) unit Pennsylvania American Water further expanded its footprint in the western part of the state by acquiring a municipal wastewater system in Beaver County for $1.8 million.

This is the third acquisition by the Pennsylvania unit of American Water Works Company in a span of three months. In Mar 2013, the company acquired two water units in northeast Pennsylvania for $1.65 million.

It appears that water utilities in Pennsylvania are finding it easier to expand operations inorganically. In Mar 2013, Pennsylvania based Aqua America, Inc. (WTR - Free Report) expanded its operation in Pennsylvania and Virginia by acquiring water and wastewater assets in two separate transactions.

Pennsylvania American Water will add 500 customers in Koppel Borough and a portion of Big Beaver Borough from this acquisition. It will provide wastewater collection and treatment services to these customers. The unit has been supplying drinking water to the area. The addition of the wastewater services will enable the company to reap the benefits from its existing facilities in the boroughs.

We appreciate the decision of the company to expand its operations in Pennsylvania from where it generated nearly 21.7% of total revenues in 2012. American Water Works Company expects to incur capital expenditure of $0.8 billion to $1 billion per year, out of which a portion is set aside for strategic acquisitions. Besides acquisitions, the company is focusing on replacing old pipelines and construction of new facilities which adhere to environmental standards and regulations.

A recent release from American Water Works Company revealed that without proper renewal or replacement, nearly 44% of the existing pipelines will become too poor for operation. The water utilities are investing in replacing and working towards maintaining their existing pipelines. However, these efforts are inadequate compared to the scale of ageing water pipeline infrastructure.

American Water Works Company currently has a Zacks Rank #3 (Hold). We however prefer American States Water Company (AWR - Free Report) and Consolidated Water Co. Ltd. (CWCO - Free Report) , both with a favorable Zacks Rank #2 (Buy).

Voorhees, N.J.-based American Water Works Company was founded in 1886. With approximately 6,700 employees, the company’s market capitalization is $7.16 billion.

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