American Water Works (AWK - Free Report) recently announced that its unit Missouri American Water has acquired City of Lawson Water and Wastewater Systems for $4 million. This acquisition will add 968 new water customers and 913 sewer customers to the company’s existing 480,000 state-wide customers in Missouri.
Water and wastewater customers in Lawson will receive their first statement from Missouri American Water during the first week of October, and will be charged the existing inside city water and wastewater rates. The customers in Lawson will benefit from Missouri American Water’s expertise for providing high-quality services at reasonable rates to customers.
This acquisition is part of American Water Works’ strategy to expand its operation through inorganic route.
Why Consolidation is Essential in Water Space?
The 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 are 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 for upgrading and expanding 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 is one of the most active players and continues to widen its market reach through acquisitions. In the first half of 2018, the company added 5,600 new customers through completed acquisitions and the pending 17 acquisitions, when completed, are further expected to add nearly 57,000 customers to its customer base.
Despite receiving acquisition offers from other companies, SJW Group (SJW - Free Report) and Connecticut Water Service, Inc. (CTWS - Free Report) continue to work out a way to create a pure-play, and geographically diverse water utility.
Zacks Rank & A Key Pick
American Water Works currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Middlesex Water Company (MSEX - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Middlesex Water Company delivered an average positive earnings surprise of 6.83% in the trailing four quarters. Earnings estimates of the company have moved up 17.9% to $1.84 in the past 30 days.
Shares of both American Water Works and Middlesex Water Company have outperformed the broader industry’s growth in a year’s time.
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