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American Water (AWK) Missouri Unit Upgrades Water Mains

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American Water Works (AWK - Free Report) recently announced that its unit Missouri American Water has replaced  nearly 32,500 feet of water main in Webster Groves and unincorporated South St. Louis County. Missouri American Water invested $16.7 million to replace about six miles of water mains, almost 60-100 years old and nearing the end of their effective service life.

Replacement of the aging water mains is essential to ensure water quality and system pressures as well as to increase system resiliency. The increase in water pressure in the new pipelines helps the firefighters to control emergency situations. Missouri 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 1.5 million people.

Investment Needed for Aging Water Infrastructure

A significant portion of existing water and wastewater pipelines in the United States has become old and is rapidly reaching the end of effective service life. Consequently, pipeline breaks occur and result in the wastage of six 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 to upgrade aging water and wastewater assets. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrade.

Systematic Investments From Water Utilities

In addition to the government spending, investor-owned water utilities operating in the United States are also making systematic capital investments.
American Water Works 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) , California Water Service Group (CWT - Free Report) and Middlesex Water (MSEX - 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. The current dividend yield of WTRG is 2.27%.  WTRG pulled off an earnings surprise of 1.45% in the past four quarters, on average. The long-term earnings (three to five years) growth of Essential Utilities is pegged at 6.2%.

California Water Service reaffirmed its 2021 capex estimates within the $270-$300 million range. Also, the midpoint of CWT’s capital expenditure planned for 2022, 2023 and 2024 is $355 million, $360 million and $365 million, respectively. The current dividend yield of CWT is 1.44%. The Zacks Consensus Estimate for 2021 earnings for California Water Service has moved up 7.6% in the past 60 days.

Middlesex Water has plans to invest $200 million during the 2022-2023 time period to strengthen its water and wastewater infrastructure to provide services to customers in a safe, reliable and efficient manner. The current dividend yield of MSEX is 1.14%. The Zacks Consensus Estimate for Middlesex Water’s fourth-quarter 2021 earnings estimates has moved up 4.3% year over year.

Shares of Essential Utilities, California Water Service and Middlesex Water have returned 2.6%, 15.3%, and 21%, respectively, in the past six months.

Price Performance

Shares of American Water have gained 8.9% in the past six months, outperforming the industry’s  3.4% rally.


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.