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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 $2.8 million in replacing more than two miles of the aging water mains in Northfield and Pleasantville. American Water’s unit will upgrade the aging 4-and 6-inch cast iron water main installed in the 1940s with the new 8-and 12-inch ductile iron main. AWK will replace six fire hydrants and 118 utility-owned service lines along the pipeline route.

The 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 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 Infrastructure

A substantial portion of U.S. water and wastewater pipelines has aged and neared the end of the 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.

Water Industry Needs Investment

Per the U.S. Environmental Protection Agency, the $473-billion investment is necessary to maintain and expand drinking water pipelines and $271 billion for wastewater pipelines to meet demand over the next 20 years. 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 in the repair and maintenance of the old infrastructure.

American Water plans to invest the $13-$14 billion range in the 2022-2026 period and the $28-$32 billion range between 2022 and 2031 to upgrade as well as strengthen the existing water and wastewater infrastructure. 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 at investing $3 billion through 2024 to strengthen water and natural gas operations. The current dividend yield of Essential Utilities is 1.5%. WTRG pulled off an earnings surprise of 1.3% in the last four quarters, on average.

California Water Service’s capital expenditure planned for 2022, 2023, and 2024 is $355 million, $360 million, and $365 million, respectively. The current dividend yield of California Water Service is 1.71%.

Middlesex Water has plans to invest $229 million during the 2022-2024 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 Middlesex Water is 1.09%.

Shares of Essential Utilities and MSEX have returned 3.4% and 8.2%, respectively, in the past month, while CWT’s shares dropped 2.5% in the same period.

Price Performance

Shares of AWK have rallied 3.5% in the past month compared with the industry’s 3.9% growth.


Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank

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

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