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American Water Works' (AWK) Arm Buys Water & Sewer Systems

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American Water Works (AWK - Free Report) announced that its subsidiary Missouri American Water acquired the Stewartsville drinking water and wastewater assets located in St. Joseph, MO. The acquisition of water and sewer systems will add 700 customers to the company’s existing clientele.

The aging of crucial water and wastewater infrastructure is concerning for the United States water industry. Missouri American Water has been delivering clean, safe, reliable, and affordable water and wastewater services to its customers and is expanding operations through strategic acquisitions.

The company is devoted to making the required capital investments, while keeping the rates stable. It has committed to invest more than $3.2 million over the next five years in improving the system’s reliability and security of the acquired assets.

Water Industry Needs Consolidation

Per the American Society of Civil Engineers ("ASCE"), more than 50,000 community water systems and 16,000 community wastewater systems in the United States are currently providing water solutions to customers. Per the ASCE finding, due to the delay in essential pipeline repairs and maintenance, 6 billion gallons of treated water is lost every day in the United States. Due to a large number of small operators in the industry and a lack of adequate funds, essential upgrades and repairs of infrastructure get delayed at times.

The acquisition of small units by larger utilities ensures necessary investments in infrastructure upgrades and the continuation of high-quality services to customers. American Water Works is the largest and most geographically diverse, publicly traded water and wastewater utility company, which continues to widen its market footprint through strategic acquisitions.

Utilities Continue to Consolidate

American Water Works continues to expand operations through acquisitions and organic means. In 2022, through 26 closed acquisitions in seven states, AWK added 70,000 customers to its base. AWK’s 21 pending acquisitions (as of Dec 31), when completed, will add another 32,400 customers.

The Zacks Consensus Estimate for American Water Works' 2023 earnings suggests year-over-year growth of 5.76%. The current dividend yield of the company is 1.9%.

Other water utilities, like SJW Group (SJW - Free Report) , Consolidated Water Co. (CWCO - Free Report) and Essential Utilities (WTRG - Free Report) , are expanding operations through systematic acquisitions.

SJW Group completed more than 25 acquisitions in the 2010-2021 time frame and expanded its 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 its existing customer base. The company plans to invest $1.5 billion in the next five years to further strengthen its infrastructure.

The Zacks Consensus Estimate for SJW Group's 2023 earnings implies year-over-year growth of 2.1%. The current dividend yield of the company is 2%.

Consolidated Water acquired the remaining 39% of PERC Water Corporation's ("PERC") equity ownership for $7.8 million. PERC’s strong operating performance, revenue growth and profitability, as well as its synergies with other areas of CWCO’s business and future growth prospects, are going to boost CWCO’s performance.

The Zacks Consensus Estimate for CWCO's 2023 earnings implies year-over-year growth of 143.5%. The current dividend yield of the company is 2.2%.

In 2022, Essential Utilities acquired three water and wastewater systems, which expanded its customer base by 23,000. Recently, Essential Utilities signed eight purchase agreements to acquire nine additional water and wastewater systems that are expected to serve 219,000 retail customers or equivalent dwelling units for $380 million.

The Zacks Consensus Estimate for WTRG's 2023 earnings implies year-over-year growth of 6.2%. The current dividend yield of the company is 2.7%.

Price Performance

Over the last six months, American Water Works’ stock has lost 7.3% compared with the industry average loss of 4.6%.

 

Zacks Investment Research
Image 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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