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American Water (AWK) New Jersey Arm to Invest in Water Mains

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American Water Works (AWK - Free Report) recently announced that its unit, New Jersey American Water, will invest $2.5 million for replacing more than 2 miles of aging water mains in Howell. American Water’s unit will upgrade 8-inch transite water lines with new 8-inch ductile iron mains. The company will replace 10 fire hydrants and 200 utility-owned service lines along the pipeline route.

Replacement of the aging water mains is essential to ensure water quality and system pressures as well as increase system resiliency. The increase in water pressure in the new pipelines helps firefighters control emergency situations. The water supply infrastructure improvement will allow New Jersey American Water to serve 2.8 million customers more efficiently.

Aging Water Infrastructure

A substantial portion of the existing water and wastewater pipelines in the United States is aging and nearing the end of effective service life. The aging of pipelines causes pipeline breakage every day in the United States, resulting in the wastage of priceless potable water.

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 the ASCE finding, a delay in essential pipeline repairs and maintenance results in the loss of 2.1 trillion gallons of treated water every year in the United States.

Frequent pipeline breaks result in the wastage of potable water and increase the risk of contamination. Hence, it is quite essential to make systematic investments for the repair and maintenance of the old infrastructure.

Investment Essential for Water Industry

Given the current condition of the water and wastewater infrastructure, it is quite essential for utility operators and the U.S government to make the required investment to upgrade the pipelines. 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 the aging water and wastewater assets. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades.

American Water 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 the 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) 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 2.25%. WTRG pulled off an earnings surprise of 1.45% in the last four quarters, on average. The Zacks Consensus Estimate for Essential Utilities’ 2022 earnings indicates 7% year-over-year growth.

California Water Service reaffirmed 2021 capex estimates within $270-$300 million. 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 1.51%. The Zacks Consensus Estimate for 2022 earnings for California Water Service has moved up 3.2% in the past 90 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 as well as efficient manner. The current dividend yield of MSEX is 1.16%. The Zacks Consensus Estimate for Middlesex Water’s 2022 earnings indicates 14.4% year-over-year growth.

Shares of Essential Utilities, California Water Service, and Middlesex Water have returned 1.1%, 10.5%, and 25.2%, respectively, in the past year.

Price Performance

Shares of American Water have lost 2.3% in the past year against the industry’s 0.8% growth.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

American Water Works currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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