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American Water's Unit Buys Granite City Wastewater System

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American Water Works Company (AWK - Free Report) announced that its subsidiary, Illinois American Water has closed the acquisition of the Granite City Wastewater Collection System. This acquisition will add 12,150 wastewater customers to the company’s existing customer base in Illinois.

Illinois American Water currently provides reliable water and wastewater services to more than 1.3 million residents in Illinois. Through this acquisition, American Water Works’ unit will extend high-quality services to new customers.

Regular Investment in Aging Water Infrastructure

The U.S. water and wastewater infrastructure is ageing and gradually approaching 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. Wastewater pipeline breaks also increase the possibility of potable water contamination.

The acquisition of Granite City Wastewater Collection System will ensure fresh investment to upgrade the aging systems. Illinois American Water plans to invest $27 million in the first five years of ownership to upgrade Granite City’s wastewater collection system.

American Water Works has been investing regularly to strengthen its 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.

Why Consolidation is Important in Water Space?

The role of consolidation is 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.

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. 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.

Other water utilities like Global Water Resources, Inc. (GWRS - Free Report) are also taking the inorganic route to expand operations in the United States. Another water utility, Essential Utilities (WTRG - Free Report) not only expanded water and wastewater operations through acquisitions but also ventured into the natural gas distribution business through the acquisition of Peoples. Given strong prospects in the water utility industry, electric utility Eversource Energy (ES - Free Report) expanded operations in the water space through the acquisition of Aquarian Water Company in December 2017. It might further increase presence in the water business through acquisitions.

Price Performance

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

Zacks Rank

Currently, the company has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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