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American Water (AWK) Pennsylvania Arm Upgrades Water Mains

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American Water Works (AWK - Free Report) announced that its unit Pennsylvania American Water has installed more than 2,000 feet of new water main in Berwick to replace old water mains that are nearly six decades old.  The company invested $0.5 million for the replacement, which will improve the reliability of customers, reduce service disruptions and increase water flows for firefighting.

Replacement of the aging water mains is quite essential to ensure water quality and system pressures as well as increase system resiliency. Pennsylvania Water regularly invests to upgrade, maintain, and expand the existing water and wastewater infrastructure. It provides high-quality and reliable water and wastewater services to nearly 2.4 million people.

In 2020, the company invested $400 million to strengthen its infrastructure and we expect the company to keep its systematic investments going to upgrade and maintain its infrastructure.

Aging Water Infrastructure a Concern

A significant portion of water and wastewater pipelines have become old and are rapidly reaching the end of effective service life. As a consequence, pipeline breaks occur and result in the wastage of 6 billion gallons of potable water each day, adding to the loss of water utility operators. The pipeline breaks not only increase the cost of water services but also expose it to the possibility of contamination.

The U.S. water infrastructure, which includes more than 2.2 million miles of pipelines, needs major repair and maintenance to provide proper services to millions of Americans. Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure.

Systematic Investment is Essential

To upgrade and refurbish the water infrastructure, a significant amount of investment is required. Per the U.S. Environmental Protection Agency, a $750-billion investment is necessary to maintain and expand drinking water as well as wastewater services to meet demand over the next 20 years.

The U.S. government has made provisions for the upgrade of aging water and wastewater assets. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrade.

Apart from the government spending, investor-owned water utilities operating in the United States are also making systematic capital investments. American Water Works has plans to invest $10.4 billion between 2021 and 2025, and $22-$25 billion in the next decade to upgrade as well as strengthen its existing water and wastewater infrastructure.

Water utility Essential Utilities (WTRG - Free Report) has plans to invest $3 billion from 2021 through 2023 to fortify operations and efficiently serve the expanding customer base. Another water utility California Water Service Group (CWT - Free Report) has been investing in its infrastructure and plans to invest in the range of $270-$300 million in 2021.

Price Performance

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

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank & Key Pick

The company currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Middlesex Water Company (MSEX - Free Report) , holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Middlesex Water delivered an average surprise of 0.5% in the last four quarters. The Zacks Consensus Estimate for 2021 earnings has moved up 3.6% in the past 60 days to $2.27 per share.