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American Water (AWK) Closes Sale of Homeowner Services Group
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American Water Works Company, Inc. (AWK - Free Report) recently completed the previously announced sale of Homeowner Services Group for $1.275 billion to funds advised by Apax Partners LLP ("Apax"). This sale of Homeowner Services Group, which has been developed by AWK over the past two decades, will allow American Water to focus more on the Military Services Group and core regulated operations.
Per the agreement, American Water received $485 million in cash, inclusive of $5 million for a working capital adjustment and a $720 million secured Seller Note bearing a 7% annual interest rate with a five-year term. The deal also includes a delayed payment to American Water of $75 million, if certain milestones are met by Dec 31, 2023.
American Water’s Long-Term Plans
American Water operates in an aging, and very fragmented water and wastewater industry. Per Environmental Protection Agency, at present, more than 53,000 community water systems and 16,000 community wastewater systems provide services across the United States. Due to limited financial strength of small service providers, the necessary investments get delayed, resulting in the wastage of precious potable water.
American Water’s long-term goal includes expanding operations through contribution from organic and acquired assets. AWK is also making systematic investments to upgrade the aging assets. American Water Works has plans to invest $13-$14 billion in the 2022-2026 time period, with $1.5-$2 billion directed toward acquisitions.
AWK expects earnings to improve at a CAGR of 7-9% in the 2022-2026 time frame, with acquired assets contributing 1.5-2.5% to total earnings. AWK targets 5,000-50,000 customer connections per acquisition. From the start of the year till Nov 1, 2021, American Water expanded the customer base by 7,450 through acquisitions. Its pending acquisitions (as of Nov 1), when completed, will add another 82,700 customers to the customer base.
Water Industry Needs Investments
The U.S. Environmental Protection Agency estimates that the water and wastewater infrastructure will require $473 billion and $271 billion, respectively, over the next 20 years for essential upgrades. Per the findings of the American Society of Civil Engineers (ASCE), water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. Per ASCE, more than 2.1 trillion gallons of treated water are lost each year.
Given the aforesaid systematic government funding, investments from investor-owned water utilities will be necessary to upgrade the quality of water infrastructure. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades.
Among the water utilities, American Water is a forerunner with well-chalked-out investment plans. In addition, 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 capital investment plans to strengthen their infrastructure.
Essential Utilities aims to invest $3 billion through 2023 to strengthen water and natural gas operations. WTRG pulled off an earnings surprise of 1.45% in the past four quarters, on average. The long-term (three to five years) earnings growth of Essential Utilities is pegged at 6.2%. The Zacks Consensus Estimate for 2021 earnings for WTRG has moved up 5.7% year over year.
California Water Service reaffirmed 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. CWT pulled off an earnings surprise of 10.8% in the last four quarters, on average. 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 Zacks Consensus Estimate for Middlesex Water’s 2021 revenues has moved up 2.4% over the past 60 days.
Shares of Essential Utilities, California Water Service, and Middlesex Water have returned 2.6%, 14.4%, and 15.3%, respectively, in the past six months.
Price Performance
Shares of American Water have gained 9.6% in the past six months, outperforming the industry’s 7.1% growth.
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American Water (AWK) Closes Sale of Homeowner Services Group
American Water Works Company, Inc. (AWK - Free Report) recently completed the previously announced sale of Homeowner Services Group for $1.275 billion to funds advised by Apax Partners LLP ("Apax"). This sale of Homeowner Services Group, which has been developed by AWK over the past two decades, will allow American Water to focus more on the Military Services Group and core regulated operations.
Per the agreement, American Water received $485 million in cash, inclusive of $5 million for a working capital adjustment and a $720 million secured Seller Note bearing a 7% annual interest rate with a five-year term. The deal also includes a delayed payment to American Water of $75 million, if certain milestones are met by Dec 31, 2023.
American Water’s Long-Term Plans
American Water operates in an aging, and very fragmented water and wastewater industry. Per Environmental Protection Agency, at present, more than 53,000 community water systems and 16,000 community wastewater systems provide services across the United States. Due to limited financial strength of small service providers, the necessary investments get delayed, resulting in the wastage of precious potable water.
American Water’s long-term goal includes expanding operations through contribution from organic and acquired assets. AWK is also making systematic investments to upgrade the aging assets. American Water Works has plans to invest $13-$14 billion in the 2022-2026 time period, with $1.5-$2 billion directed toward acquisitions.
AWK expects earnings to improve at a CAGR of 7-9% in the 2022-2026 time frame, with acquired assets contributing 1.5-2.5% to total earnings. AWK targets 5,000-50,000 customer connections per acquisition. From the start of the year till Nov 1, 2021, American Water expanded the customer base by 7,450 through acquisitions. Its pending acquisitions (as of Nov 1), when completed, will add another 82,700 customers to the customer base.
Water Industry Needs Investments
The U.S. Environmental Protection Agency estimates that the water and wastewater infrastructure will require $473 billion and $271 billion, respectively, over the next 20 years for essential upgrades. Per the findings of the American Society of Civil Engineers (ASCE), water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. Per ASCE, more than 2.1 trillion gallons of treated water are lost each year.
Given the aforesaid systematic government funding, investments from investor-owned water utilities will be necessary to upgrade the quality of water infrastructure. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades.
Among the water utilities, American Water is a forerunner with well-chalked-out investment plans. In addition, 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 capital investment plans to strengthen their infrastructure.
Essential Utilities aims to invest $3 billion through 2023 to strengthen water and natural gas operations. WTRG pulled off an earnings surprise of 1.45% in the past four quarters, on average. The long-term (three to five years) earnings growth of Essential Utilities is pegged at 6.2%. The Zacks Consensus Estimate for 2021 earnings for WTRG has moved up 5.7% year over year.
California Water Service reaffirmed 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. CWT pulled off an earnings surprise of 10.8% in the last four quarters, on average. 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 Zacks Consensus Estimate for Middlesex Water’s 2021 revenues has moved up 2.4% over the past 60 days.
Shares of Essential Utilities, California Water Service, and Middlesex Water have returned 2.6%, 14.4%, and 15.3%, respectively, in the past six months.
Price Performance
Shares of American Water have gained 9.6% in the past six months, outperforming the industry’s 7.1% growth.
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.