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Aqua America (WTR) Sees a Strong 2016, Closes 19 Buyouts

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Water and wastewater service provider Aqua America Inc. disclosed that it has successfully completed 19 acquisitions in 2016, which added nearly 25,000 customers to its existing base. In 2015, the company had added 17,747 customers primarily through utility system acquisitions.

A Sneak Peek into the Fourth Quarter
 
The recently concluded quarter marked the busiest period for Aqua America in terms of closing acquisitions of water and wastewater companies. The company was able to close nine acquisitions in the fourth quarter. Inorganic growth, along with the company’s organic initiatives, expanded its customer base by 1.6% on a year-over-year basis.

Consolidation in the Industry

Consolidation is the need of the hour in the fragmented U.S. water utility space. The old water utility infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.

During the six-year period ending Dec 31, 2016 Aqua America has expanded its utility operations by completing 94 acquisitions as well as other growth ventures.

Other water utilities like American Water Works (AWK - Free Report) and Connecticut Water Service are also actively expanding their customer base through acquisitions.

Water Infrastructure Needs to be Addressed

These companies have to continuously upgrade and maintain water infrastructure through massive investments. An Environment Protection Agency (EPA) 2016 report projects capital investment of $271 billion in upgrading drinking water and wastewater projects within the next five years.

The Dec 2016 increase in the interest rates might hurt companies operating in this space, as these utilities frequently need to take loans to execute capital projects. However, we believe that companies like American States Water Company (AWR - Free Report) that have an excellent rating will be able to get loans at favorable terms to carry out development work. Incidentally, company aimed to invest in the range of $105 million to $115 million in capital projects in 2016, following an investment of $95 million in the first nine months of 2016.

Regardless of the interest rate environment, water and wastewater operators have to take responsibility of infrastructural upgrades as and when required. This, in a way, creates ample scope for growth for regulated water utilities.

Price Movement

Over the last three months, Aqua America has outperformed the Zacks categorized Utility – Water Supply industry. During this period, the company’s shares gained 1.2%, compared with the industry’s increase of 0.2%.



Nine successfully completed acquisitions, along with the extensive network of water treatment, pumping and distribution facilities, and supply sources owned by the company helps it to serve its customers efficiently and reliably.

Zacks Rank

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

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