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American Water (AWK) Unit to Acquire Sewer Assets for $231M
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American Water Works Company (AWK - Free Report) has announced that its subsidiary, Pennsylvania American Water, will acquire the wastewater system assets of the Butler Area Sewer Authority (BASA), PA, for $231.5 million. This acquisition is expected to close by the end of 2023 after receiving approval from all regulatory authorities. This deal will add 15,000 wastewater customers to Pennsylvania American Water’s existing customer base of 2.4 million.
The aging of crucial water and wastewater infrastructure is concerning for the water industry of the United States. After completing the acquisition, Pennsylvania American Water plans to invest nearly $75 million to improve the overall wastewater infrastructure of the acquired assets.
The acquisition of wastewater assets is an extension of American Water Works’ high-quality services. Pennsylvania American Water has been providing water service to nearly 19,500 customers in the region.
Fragmented Industry Needs Consolidation
According to the Environmental Protection Agency, at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. Due to a large number of small operators in the industry and lack of adequate funds, at times, essential upgrade and repair of infrastructure get delayed.
Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. The breaks in the pipeline result in the wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators. Aging and lack of timely maintenance are major contributors to pipeline breaks.
The acquisition of small units by larger utilities ensures necessary investments for the upgrade of infrastructure and the continuation of high-quality services for customers. American Water Works continues to widen its market footprint through strategic acquisitions.
Utilities Continue to Consolidate
American Water Works is expanding its customer base through organic initiatives and acquisitions. It continues to focus on the acquisition of utilities that provide services to 5,000-50,000 customers. Through nine acquisitions, the company added 51,000 customers to its existing customer base. AWK’s pending acquisitions (as of Jun 30, 2022), when completed, will add another 29,200 customers to its base.
Other water utilities like California Water Service Group (CWT - Free Report) , SJW Group (SJW - Free Report) and Essential Utilities (WTRG - Free Report) , among others in the water utility space, are expanding operations through systematic acquisitions.
California Water Service recently received approval to acquire the water system assets of Skylonda Mutual Water Company. The buyout is scheduled to close later this year, subject to customary closing conditions. In April 2022, another unit of California Water Service, New Mexico Water Service, closed the acquisition of Morningstar Water System, which added 2,000 water connections.
The Zacks Consensus Estimate for California Water Service's 2023 earnings suggests year-over-year growth of 14.3%. The current dividend yield of the company is 1.87%. The company currently has a Zacks Rank #2 (Buy).
SJW Group completed more than 25 acquisitions in the 2010-2021 time frame and expanded operations. In January 2022, it closed the acquisition of Texas Country Water in Comal, TX. The deal added more than 1,900 water and wastewater customers to the existing customer base. This has been the fourth Texas acquisition by SJW Group in the past 12 months. In the next five years, the company plans to invest $1.5 billion to further strengthen its infrastructure.
The Zacks Consensus Estimate for SJW Group's 2022 and 2023 earnings implies year-over-year growth of 15.3% and 9%, respectively. It currently has a Zacks Rank #3 (Hold).
In the six years ended Dec 31, 2021, Essential Utilities expanded utility operations by completing many water and wastewater acquisitions, which, in turn, added 94,000 customers. In the first quarter of 2022, the company completed one buyout, which added 11,000 customers. Essential Utilities plans to invest $3 billion from 2022 through 2024 to fortify operations and efficiently serve the expanding customer base.
Essential Utilities’ long-term earnings growth is currently pegged at 6.2%. The Zacks Consensus Estimate for WTRG's 2022 and 2023 earnings implies year-over-year growth of 6.6% and 6.7%, respectively.
Price Performance
Shares of AWK have lost 13.7% in the past three months compared with the industry’s 6.2% decline.
Image: Bigstock
American Water (AWK) Unit to Acquire Sewer Assets for $231M
American Water Works Company (AWK - Free Report) has announced that its subsidiary, Pennsylvania American Water, will acquire the wastewater system assets of the Butler Area Sewer Authority (BASA), PA, for $231.5 million. This acquisition is expected to close by the end of 2023 after receiving approval from all regulatory authorities. This deal will add 15,000 wastewater customers to Pennsylvania American Water’s existing customer base of 2.4 million.
The aging of crucial water and wastewater infrastructure is concerning for the water industry of the United States. After completing the acquisition, Pennsylvania American Water plans to invest nearly $75 million to improve the overall wastewater infrastructure of the acquired assets.
The acquisition of wastewater assets is an extension of American Water Works’ high-quality services. Pennsylvania American Water has been providing water service to nearly 19,500 customers in the region.
Fragmented Industry Needs Consolidation
According to the Environmental Protection Agency, at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. Due to a large number of small operators in the industry and lack of adequate funds, at times, essential upgrade and repair of infrastructure get delayed.
Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. The breaks in the pipeline result in the wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators. Aging and lack of timely maintenance are major contributors to pipeline breaks.
The acquisition of small units by larger utilities ensures necessary investments for the upgrade of infrastructure and the continuation of high-quality services for customers. American Water Works continues to widen its market footprint through strategic acquisitions.
Utilities Continue to Consolidate
American Water Works is expanding its customer base through organic initiatives and acquisitions. It continues to focus on the acquisition of utilities that provide services to 5,000-50,000 customers. Through nine acquisitions, the company added 51,000 customers to its existing customer base. AWK’s pending acquisitions (as of Jun 30, 2022), when completed, will add another 29,200 customers to its base.
Other water utilities like California Water Service Group (CWT - Free Report) , SJW Group (SJW - Free Report) and Essential Utilities (WTRG - Free Report) , among others in the water utility space, are expanding operations through systematic acquisitions.
California Water Service recently received approval to acquire the water system assets of Skylonda Mutual Water Company. The buyout is scheduled to close later this year, subject to customary closing conditions. In April 2022, another unit of California Water Service, New Mexico Water Service, closed the acquisition of Morningstar Water System, which added 2,000 water connections.
The Zacks Consensus Estimate for California Water Service's 2023 earnings suggests year-over-year growth of 14.3%. The current dividend yield of the company is 1.87%. The company currently has a Zacks Rank #2 (Buy).
SJW Group completed more than 25 acquisitions in the 2010-2021 time frame and expanded operations. In January 2022, it closed the acquisition of Texas Country Water in Comal, TX. The deal added more than 1,900 water and wastewater customers to the existing customer base. This has been the fourth Texas acquisition by SJW Group in the past 12 months. In the next five years, the company plans to invest $1.5 billion to further strengthen its infrastructure.
The Zacks Consensus Estimate for SJW Group's 2022 and 2023 earnings implies year-over-year growth of 15.3% and 9%, respectively. It currently has a Zacks Rank #3 (Hold).
In the six years ended Dec 31, 2021, Essential Utilities expanded utility operations by completing many water and wastewater acquisitions, which, in turn, added 94,000 customers. In the first quarter of 2022, the company completed one buyout, which added 11,000 customers. Essential Utilities plans to invest $3 billion from 2022 through 2024 to fortify operations and efficiently serve the expanding customer base.
Essential Utilities’ long-term earnings growth is currently pegged at 6.2%. The Zacks Consensus Estimate for WTRG's 2022 and 2023 earnings implies year-over-year growth of 6.6% and 6.7%, respectively.
Price Performance
Shares of AWK have lost 13.7% in the past three months compared with the industry’s 6.2% decline.
Image Source: Zacks Investment Research
Zacks Rank
American Water Works currently has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.