Back to top

Image: Bigstock

American Water's (AWK) New Jersey Arm to Invest in Water Main

Read MoreHide Full Article

American Water Works Company Inc. (AWK - Free Report) recently announced that its unit, New Jersey American Water, will invest $8.75 million to replace more than four miles of aging water mains in Plainfield, Roselle, Summit and Union Township, NJ. Along with replacement of old mains, this project will replace 36 fire hydrants and 373 utility-owned service lines along the pipeline route. The proper maintenance of water mains will ensure adequate water supply for its customers and provide ample water supply for firefighting.

New Jersey American Water has been very active in upgrading and maintaining its water and wastewater infrastructure. The company has been methodically replacing old water mains. It plans to remove all lead and galvanized service lines by 2031 and provide high-quality services to 2.8 million people in the state.

Aging Water Infrastructure Needs Upgrade

A substantial portion of the U.S. water and wastewater infrastructure has aged and is nearing the end of effective service life. Repair and upgrade of the miles of aging pipeline is essential to maintain quality water services. Delay in repair could cause frequent disruptions in the 24x7 supply of potable water and sewer services.

Per the U.S. Environmental Protection Agency, investment of $473 billion and $271 billion is necessary to maintain and expand drinking water pipelines and wastewater pipelines, respectively, to meet demand over the next 20 years.  Water infrastructure, like storage tanks and water purifying units, also need maintenance at proper intervals.

Utilities Making Systematic Investment

Given the above scenario, it is quite evident that systematic investment to upgrade and maintain the old infrastructure and make provisions for adding new infrastructure will assist the operators in meeting the demand from the rising customer base. The water utilities are making systematic investments to replace and upgrade the aging water infrastructure.

American Water plans to invest around $13-$14 billion during 2022-2026 and around $28-$32 billion between 2022 and 2031 to upgrade as well as strengthen the existing water and wastewater infrastructure. Water utilities like California Water Service Group (CWT - Free Report) , Essential Utilities (WTRG - Free Report) and Middlesex Water (MSEX - Free Report) have well-chalked-out capital investment plans to strengthen their infrastructure.

California Water Service has more than $1 billion capital expenditure planned for the 2022-2024 time period. The current dividend yield of California Water Service is nearly 1.8%. The Zacks Consensus Estimate for CWT’s 2023 earnings indicates year-over-year growth of 9.3%.

Essential Utilities aims to invest $3 billion through 2024 to strengthen water and natural gas operations. The Zacks Consensus Estimate for WTRG’s 2022 earnings indicates year-over-year growth of 6.6%. The long-term (three to five years) earnings growth of WTRG is currently pegged at 6.1%. The current dividend yield of Essential Utilities is nearly 2.3%.

Middlesex Water plans to invest $229 million during 2022-2024 to strengthen its water and wastewater infrastructure for providing services to customers in a safe, reliable and efficient manner. The Zacks Consensus Estimate for MSEX’s 2022 and 2023 earnings indicates year-over-year growth of 28% and 7.6%, respectively. MSEX reported an average surprise of 2.02% in the last four quarters.

Price Performance

Shares of AWK have risen 6.7% in the past month compared with the industry’s 6.5% growth.

 

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank

American Water currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Published in