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American Water's Unit Buys City of Farmington Water System

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American Water Works Company Inc. (AWK - Free Report) announced that its subsidiary — Illinois American Water — has completed the acquisition of the City of Farmington’s water system for $3.75 million. The acquisition has resulted in the addition of 1,125 new water customers to the company’s existing customer base.

Illinois American Water has plans to invest $5 million in the next five years to improve the existing water infrastructure of the City of Farmington. This company will focus on improving water pressure, water main replacements, installations of loop water mains and meter exchange to provide high-quality services to its customers in the region.

Last month, Illinois American Water completed the acquisition of the Village of Fisher for $6.8 million, adding around 850 water and wastewater customers to the company’s existing customer base. (Read more: American Water's Unit Acquires Village of Fisher for $6.8M)

Aging Water Infrastructure

The U.S. water infrastructure is quite old and requires massive investment to upgrade the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Investment of billions of dollars is required for the purpose.  

American Water Works anticipates investing $8.0-$8.6 billion from 2018 through 2022, which will help it to improve earnings by 7-10% per year in the aforesaid period from a 2015 base. A major chunk of $7.2 billion will be directed to strengthen its regulated businesses.

Another water utility, Aqua America Inc. (WTR - Free Report) after investing $478 million in 2017, aims to make capital investments in excess of $500 million in 2018, which is part of an ambitious investment target of more than $1.4 billion in the 2018-2020 time period.

Acquisition & Merger in the Water Space
 
The old water and wastewater infrastructure needs ample investments, easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls for the industry at large.

American Water Works Company is very active on the acquisition front and has been increasing its existing operations in the United States through acquisitions of water and wastewater service providers. During 2016, the company added 42,000 customers to its existing customer base through acquisitions. American Water Works added 39,514 customers in 2017 through acquisitions. The company is already in discussion to acquire another 23,000 customers through acquisitions

Recently, Connecticut Water Service announced that it has entered into a definite agreement to merge with SJW Group (SJW - Free Report) in an all-stock transaction. The combined company will become one of the largest water and wastewater service providers in the United States, and serve more than 1.5 million customers in multiple states.

Price Movement

In a year’s time, shares of American Water Works have outperformed its industry. The stock has gained 5.0% compared with the industry’s rally of 3.7%.



Zacks Rank

American Water Works 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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