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American Water's (AWK) Unit to Acquire Roxbury Water Company

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American Water Works (AWK - Free Report) announced that its unit New Jersey American Water has entered into an agreement to acquire Roxbury Water Company, which is based in Morris County, NJ. This acquisition is subject to approval from the New Jersey Board of Public Utilities and will increase the customer base of New Jersey American Water by 3,900.

New Jersey American Water already provides services to 623,000 water customers as well as 34,000 wastewater customers in New Jersey and operates 8,900 miles of pipeline (water and wastewater) in the state. This acquisition will help the company provide water in the water-scarce Highlands Region.

Consolidation is the Need of the Hour

Consolidation is the need of the hour in the fragmented U.S. water utility space. U.S. water utility operation is highly fragmented and there are a large number of small operators serving only a few hundred customers. The overall water infrastructure is aging, and billions of dollars is needed to be invested for strengthening and upgrading the existing water infrastructure. It becomes very difficult for small operators or municipalities to make large investments to upgrade and expand their water and wastewater infrastructure.

However, it is easier for large companies to make arrangement for funds to carry out these major overhauls. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.

American Water Works continues to widen its market footprint through strategic acquisitions. Till Jun 1, 2018, the company added 5,524 new customers through completed acquisitions. The pending acquisitions, when completed, are expected to add more than 54,000 customers to its customer base.

Eversource Energy (ES - Free Report) was primarily focused on energy business but forayed into water business via acquisition of Aquarion Water Company in December 2017. It had the intention to expand its water operations through more strategic acquisitions. The company made a couple of unsuccessful bids to acquire Connecticut Water Service (CTWS - Free Report) .

Large Water Utilities are Pumping More Funds

Large water utilities have strong long-term capital investment plans to upgrade their existing assets and also fortify the assets that are added to their portfolio via acquisitions.

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

Aqua America (WTR - Free Report) , 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 frame.

Price Movement

In a year’s time, shares of American Water have gained 7.2% against its industry's  decline of 1.4%.

Zacks Rank

Currently, 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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