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American Water (AWK) Pennsylvania Arm Upgrades Water Mains

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American Water Works (AWK - Free Report) recently announced that its unit Pennsylvania American Water will install more than 3,200 feet of new water main in Montgomery County to replace the nearly seven decades old water mains.  Pennsylvania American will invest $1 million for the replacement, which will improve the reliability of customers, reduce service disruptions, and increase water flows for firefighting. The water main installation and connection of all customer service lines will be completed by the end of the year.

Replacement of the aging water mains is essential to ensure water quality and system pressures as well as to 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, Pennsylvania American invested $400 million to strengthen its infrastructure and systematic investments have also been made this year to upgrade, replace, and maintain water and wastewater infrastructure.

Investment is Essential for Water Industry

A significant portion of existing water and wastewater pipelines has become old and is 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 losses of water utility operators.

To upgrade and refurbish the water infrastructure, substantial investment is required. Per the U.S. Environmental Protection Agency, a $473 billion investment is necessary to maintain and expand drinking water pipelines and $271 billion for wastewater pipelines to meet the 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 $ $13-$14 billion in the 2022-2026 time period and $28-$32 billion between 2022 and 2031 to upgrade as well as strengthen existing water and wastewater infrastructure.

Other water utilities like Essential Utilities (WTRG - Free Report) and California Water Service Group (CWT - Free Report) among others have well chalked out capital investment plans to strengthen their infrastructure. Essential Utilities aims to invest $3 billion through 2023 to strengthen water and natural gas operations while California Water Service plans to invest $1.08 billion in the 2022-2024 time frame to strengthen its operation.

Shares of Essential Utilities and California Water Service have returned 2% and 16.4%, respectively, in the past six months.

Price Performance

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

 

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

American Water Works 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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