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AWR to Expand in California

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As per media report, American States Water Company (AWR - Free Report) has decided to acquire Rural Water Co. which serves nearly 940 customers in Arroyo Grande, Calif. The terms of the agreement were not disclosed.

American States Water is a reliable water supplier, catering to 1 out of every 36 Californians. This present acquisition might not change the existing equation but is definitely a positive move towards expanding its operation in the state.

It appears that large water utilities are favoring the inorganic route to increase their customer base. Pennsylvania American Water, a unit of American Water Works Company (AWK - Free Report) , acquired three water units in a span of three months to expand its operations in Pennsylvania.

A report from Economic Development Research Group Inc. suggests an alarming gap between the water infrastructural requirement and actual investments in the coming years. The gap is expected to reach $84 billion in 2020 and might touch $144 billion in 2040. The report also revealed that without proper renewal or replacement, nearly 44% of the existing pipelines will become too weak for operation by 2020.

While water utilities are taking steps and investing regularly to bridge the gap, more efforts are required to minimize the difference. We believe consolidation of the smaller units under the umbrella of a bigger water and wastewater operator could be a positive step in that direction. The synergies of merger and decline in overhead operating expenses could allow the companies to concentrate more in development and maintenance of its infrastructure.

In addition, timely favorable decision by the commissions on water rate filing will ensure steady flow of investments from the water utility operators. Water utility operators are also enhancing their supply capacity through organic ways to cope with the increasing demand for water. We believe that spreading public awareness on effective use of water as well as replacement of the main pipelines can curb wastage.  

American States Water Company currently has a Zacks Rank # 2 (Buy). Other operators in the industry that are performing well include Consolidated Water Co. Ltd. (CWCO - Free Report) and Middlesex Water Co. (MSEX - Free Report) . Both of these companies currently carry a Zacks Rank #2 (buy).

Based in San Dimas, California, American States Water Company was founded in 1929. The company caters to customers in the United States and distributes water, electricity and other allied services.

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