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American Water Unit to Invest $45M in Water Treatment Plant

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American Water Works Company (AWK - Free Report) announced that its subsidiary, Indiana American Water will invest $45 million to accomplish a major upgrade of the company’s water treatment facility on Richmond’s northeast side.

The new project will involve construction of a new high-quality water treatment plant, which will meet the most stringent water quality standards and replace Indiana American Water’s old treatment plant located near Middlefork Reservoir on the city’s northeast side.

Project Details

Indiana American Water’s new water treatment plant will make use of the ultraviolet disinfection (UV) process to treat water, for meeting the stringent water-quality regulations associated with the Environmental Protection Agency’s Long Term 2 Enhanced Surface Water Treatment Rule.

The Richmond treatment plant uses both surface water and ground water as its source of supply. Moreover, the usage of UV disinfection provides an additional layer of protection against chlorine-resistant pathogens and microorganisms that could be present in the surface water sources.

In addition to replacing the old treatment plant, this project will also involve the construction of a 20-inch transmission main to transport water from the company’s Main Station site for treatment at the new Middlefork facility and replacement of a pumping station on the city’s east side.

Upgradation of Aging Infrastructure

The U.S. water infrastructure in quite old, and massive investment is required to upgrade the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Replacement of old transmission mains and upgradation of treatment plants require investment of billions of dollars, for improving the water infrastructure.

American Water Works aims to invest $8.0-$8.6 billion from 2018 through 2022, which will help to improve earnings by 7-10% per year in the aforesaid period from a 2016 base. In 2018, the company plans to invest in the range of $1.9-$2.1 billion for capital expenditures and acquisitions.

Aqua America , another water utility, 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. Connecticut Water Service Inc. also aims to invest more than $150 million in the 2018-2020 time frame to strengthen its existing infrastructure.

Consolidation in the Water Space
The water utility industry offers excellent growth opportunities and as a consequence, we are noticing a rising interest in this space, shown by companies that were earlier focused primarily on other businesses.

American Water Works is quite busy on the acquisition front. During the first four months of 2018, the company added 3,689 customers through five completed acquisitions and nearly 1,500 via organic initiatives. The company is already in discussion to acquire 15 more companies, which will add another 47,186 customers.

Earlier this month, California Water Service Group (CWT - Free Report) made a tender offer to the shareholders of SJW Group (SJW - Free Report) for acquiring all the outstanding shares of the latter for an all-in-cash price of $68.25 per share, at a 6.1% premium from the price on the date of offer. (Read more: California Water Makes Offer to SJW Group Shareholders)

Zacks Rank & Price Movement

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

In a year’s time, shares of American Water have gained 6.5% compared with the industry’s growth of 0.8%.

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