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American Water's (AWK) PA Unit to Invest $11.3M in Upgrades

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American Water Works (AWK - Free Report) announced that its unit, Pennsylvania American Water, will invest $11.3 million to upgrade its McKeesport wastewater system. The fresh investments will be directed to replacing and upgrading 5,000 feet of sewer mains in the City of McKeesport and installing a new vault to store wastewater during significant storm.

Pennsylvania American Water’s McKeesport system serves nearly 12,000 customers. Since the acquisition of McKeesport’s wastewater system in 2017, Pennsylvania American Water has already invested in McKeesport’s wastewater infrastructure and plans to invest an additional $35.4 million during the next five years.

The amount invested and planned to be invested in the upgrade of the system will improve the reliability of services and the water quality in the Youghiogheny and Monongahela Rivers.

Pennsylvania American Water has been expanding its operations through acquisitions and is also making essential investments to upgrade and maintain its acquired assets. In 2022, Pennsylvania American Water invested nearly $490 million to improve our water and wastewater treatment and pipeline systems. The company has made significant investments this year and will continue to do so in the remainder of 2023.

Investments: A Must for Aging Infrastructures

To provide uninterrupted water and wastewater services to millions of customers across the United States, water utilities have to maintain and upgrade their infrastructure. The repair and upgrade of water and sewage pipelines, water treatment plants and storage tanks are quite essential. A vast majority of these essential infrastructures are nearing the end of their effective service lives.

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

Per the ASCE report, nearly 6 billion gallons of treated water is lost each day in the United States due to water main breaks every two minutes. This wastage of potable water is increasing the cost of operations for water utilities. The pipeline breaks can also increase the risk of contamination of potable water.

Investments Coming From Utilities

Large water utilities are making investments in upgrading infrastructure, but the highly fragmented water industry remains a major headwind. Small water suppliers lack the financial strength to make essential repairs, which leads to pipeline breaks and interruptions of services in some areas.

Water utilities like Essential Utilities (WTRG - Free Report) , California Water Service Group (CWT - Free Report) and Middlesex Water Company (MSEX - Free Report) , among others, have well-chalked-out capital investment plans to strengthen infrastructure.

Essential Utilities plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve the water and natural gas systems and better serve customers using improved information technology.

California Water Service plans to invest more than $625 million in capital expenditures through 2024.

Middlesex Water plans to invest $266 million during 2023-2025 to strengthen its water and wastewater infrastructure and provide services to customers in a safe, reliable and efficient manner.

The Zacks Consensus Estimate for WTRG and CWT’s 2023 earnings indicates year-over-year growth of 5.1% and 7.9%, respectively. MSEX’s 2023 earnings estimates have moved up 0.5% in the past 60 days.

Price Performance

In the last month, American Water Works’ stock gained 0.5% compared with the industry’s rally of 0.7%.

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank

American Water currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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