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American Water (AWK) Illinois Arm Buys Four Lakes Water for $0.9M

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American Water Works Company (AWK - Free Report) announced that its subsidiary, Illinois American Water has closed the acquisition of Four Lakes Village Condominium Homeowners Association (Four Lakes) water distribution system for $0.9M. This acquisition will add 57 connections serving approximately 1,300 households in Lisle, IL.

This acquisition will expand Illinois American Water’s operation in the Chicago Metro area and the company will make the necessary investments to upgrade the water distribution systems therein. It will upgrade the distribution systems with the installation of new Advanced Metering Infrastructure meters in each building this month.

Consolidation Essential for Water Space

Currently, consolidation is extremely vital in the water utility space, as it is difficult for small water 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 infrastructure upgrade expenses.

So, deep-pocketed large water utility operators make strategic acquisitions and keep on consolidating the fragmented water space. Large water utilities also ensure that regular investments are made in upgrading and maintaining the aging assets.

American Water Works is quite active in acquiring small service providers. Till Nov 3, it added 47,100 customers to the existing customer base, out of which 10,900 customers were added through the organic route. The company is planning to invest $8.8-$9.4 billion in the 2020-2024 time period and $20-$22 billion in the next decade to upgrade and maintain its infrastructure.

Another water utility, Essential Utilities (WTRG - Free Report) has 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 and Stocks to Consider

Currently, the company has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same industry include California Water Service Group (CWT - Free Report) and Primo Water Corporation (PRMW - Free Report) . California Water Service sports a Zacks Rank #1 (Strong Buy) and Primo Water carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

California Water Service delivered an earnings surprise of 70.2% in the last reported quarter. The Zacks Consensus Estimate for its 2020 earnings has moved 25.5% upward to $1.77 per share in the past 60 days.

Primo Water delivered an earnings surprise of 65%, on average, in the last four quarters. The Zacks Consensus Estimate for its 2020 earnings has moved 20.9% upward to 52 cents per share in the past 60 days.

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