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American Water's (AWK) Pennsylvania Arm Buys Assets for $13M

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American Water Works Company (AWK - Free Report) announced that its subsidiary, Pennsylvania American Water, has acquired the wastewater system assets of Royersford Borough, Montgomery County for $13 million.

Pennsylvania American Water, through this acquisition, will be providing wastewater services to 1,600 new customer connections. The acquisition will pave way for the necessary investments to upgrade the Royersford wastewater system. The company will invest $1.6 million in the next few years to strengthen and improve the existing wastewater infrastructure in the region.

Pennsylvania American Water has successfully closed a few large acquisitions and expanded business in Pennsylvania. Last month, the company entered into an agreement to acquire wastewater system assets of the City of York in York County for $235 million. This acquisition is expected to close by 2021-end or the beginning of 2022, subject to necessary regulatory approvals. Pennsylvania American Water currently provides reliable water and wastewater services to more than 2.4 million people in its service territories.

Fragmentation Makes Consolidation Essential for Water Space

Aging of assets and fragmentation are primary concerns of the existing U.S. water and wastewater industry. Per the U.S. Environmental Protection Agency reports, more than 53,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. This highly fragmented industry creates operational challenges in meeting the requirement, as small service providers at times does not have the necessary financial strengthen to fund costly infrastructural upgrades.

Per the Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain, and expand drinking water as well as wastewater services to meet demand over the next 20 years.

Given the backdrop, large water utilities like American Water is quite active in making acquisitions to expand operations and make the necessary investments to upgrade the acquired property. From the start of the year till May 1, the company expanded the customer base by 4,500 through organic means and acquisitions. Its pending 32 acquisitions (as of May 1), when completed, will add another 86,000 customers to the customer base. The company remains committed to expand the business through inorganic and organic ways. American Water continues to focus on the acquisition of utilities that provide services to 5,000-50,000 customers.

Likewise, 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 plans to invest $3 billion through 2023 to fortify operations and efficiently serve the expanding customer base. Another water utility, Global Water Resources, Inc. (GWRS - Free Report) is taking the inorganic route to expand operations in the United States and making investments to upgrade infrastructure. California Water Service (CWT - Free Report) has decided to invest in the range of $270-$300 million in 2021 and expand operations through strategic acquisitions.

Price Performance

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

Zacks Rank

The company currently 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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