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American Water Works Wins Defense Deal

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Water utility American Water Works Company Inc. (AWK - Free Report) received a contract worth $288 million from the U.S. Department of Defense. Per the contract, the company will maintain and operate the water and wastewater systems at Hill Air Force Base, Utah for the next 50 years. The deal comes with an annual price adjustment clause allowing the company to adjust for price increases.  

American Water Works Military Services Group will be entrusted to carry out this work for the next five decades. This deal marks a sunny start for this water utility and speaks of the quality of services offered by American Water Works.

American Water Works’ expertise and long-standing working relationship with the defense department helped to win this long-term contract. Prior to this, American Water Works has rendered services at nine other military installations across the U.S.

We believe this deal will open up new military installation opportunities in the U.S. Besides serving service personnel the company also caters to nearly 14 million customers across 30 U.S. states and some parts of Canada.

American Water Works is consistently working on a strategy to increase its presence in the U.S. through organic as well as inorganic ways. In 2013, the company completed 15 acquisitions and invested close to $1 billion to upgrade and improve its infrastructure.

We expect the company to win more contracts in 2014. This will enable it to meet its 2014 guidance of $2.35–$2.45 per share, up 8.3% to 10.4% from the 2013 forecast.

Recently, another U.S.-based water utility Aqua America Inc. (WTR - Free Report) expanded its operations by acquiring four water systems and two wastewater systems. Aqua America also invested nearly $216.1 million in the first nine month of 2013 to upgrade its existing assets.

As per the U.S. Environmental Protection Agency’s report, the U.S. utility providers need to spend $384 billion through 2030 to revamp and upgrade the ageing water systems in the U.S. We expect other water utilities like California Water Service Group (CWT - Free Report) among others to continue to invest and improve the ageing water infrastructure.

American Water Works currently has a Zacks Rank #3 (Hold). A better-ranked water utility is Connecticut Water Service Inc. . Connecticut Water Service carries a Zacks Rank #2 (Buy).

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