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American Water Unit to Replace Water Mains in Pennsylvania

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American Water Works Company (AWK - Free Report) recently announced that its subsidiary — Pennsylvania American Water — has started to work on a project to replace nearly 1,900 feet old water mains along Stanbridge Street between West Elm Street and the Stanbridge Street entrance to Norristown Farm Park, PA.

In an effort to improve service reliability and prevent water outages, Pennsylvania American Water will be replacing 1,100 feet along North Trooper Road between Chestnut Avenue and Amy Drive and 800 feet of aging pipe along 3rd Avenue between West Johnson Highway and Hancock Avenue. To replace the old pipes dating back to 1890s the company will be investing $1.4 million.

American Water Works aims to invest $8.4-$9.0 billion from 2018 through 2022, which will help it improve earnings by 7-10% per year in the aforesaid period from a 2016 base. A major chunk of $7.2 billion will be directed to strengthen regulated businesses.

Aging Water Infrastructure a Concern

A major portion of existing U.S. water infrastructure have reached near the end of its effective life and needs replacement. A recent study from Utah State University showed that overall water main break over the last six-year period has gone up 27% in the United States and Canada. The primary reasons behind water main failure are the aging water infrastructure and higher failures rates of smaller water utilities compared with larger ones.

Consolidation Helps Water Space

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.

It is easier for large companies to make arrangement for funds to carry out these major overhauls. 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 buyouts, when closed, are further expected to add nearly 57,000 customers to its customer base.

Another water utility, Aqua America (WTR - Free Report) expanded its utility operations by completing 70 acquisitions or other growth ventures during the five-year period ending Dec 31, 2017. The company aims to increase its customer base by 2-3% annually.

Global Water Resources, Inc. (GWRS - Free Report) entered into an agreement to acquire four utilities in the past 18 months, in a bid to augment its inorganic and organic growth. Also, it is on track to achieve a double-digit customer growth rate in 2018.

Zacks Rank and A Key Pick

Currently, American Water Works 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 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 60 days.

Shares of both American Water Works and Middlesex Water Company have outperformed the industry in a year’s time.

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