American Water Works Company (AWK - Free Report) announced that its unit, Kentucky American Water has acquired water and wastewater assets of the City of North Middletown in Bourbon County, KY. This transaction will add nearly 400 water customers and 250 wastewater customers to its existing customer base and further expand operation in this area.
Prior to the acquisition, City of North Middletown was a wholesale water customer of Kentucky American Water. Hence, the acquisition in a way will allow customers of City of North Middletown to enjoy high-quality services from Kentucky American Water. Kentucky American Water provides reliable water and wastewater services to nearly 500,000 people in Kentucky.
Consolidation is Essential in Water Space
At present, more than 53,000 water systems in the United States provide water solutions to customers. The highly fragmented water industry creates operational challenges in meeting increasing requirement for potable water and wastewater services. The operational challenges are primarily due to aging U.S. water and wastewater infrastructure, which is gradually nearing the end of effective life. It becomes very difficult for small water and wastewater service providers to carry on expensive overhauls, in turn increasing the possibility of failure and contamination in existing water systems.
In such a backdrop, consolidation of small water units under a bigger water utility company ensures a regular funding for upgrade and usage of new technology to provide quality services to clients. American Water, which is one of the most active players in the water space, continues to widen its market reach through acquisitions. It has already completed a few acquisitions in 2019 and the pending ones, on completion, are expected to add nearly 61,000 customers to its customer base during the year.
In addition to American Water, water utilities like Global Water Resources, Inc. (GWRS - Free Report) and Aqua America (WTR - Free Report) have been actively pursuing acquisitions. Consolidation will help improve the quality of water and wastewater services provided to the company’s expanding customer base.
Research reports from World Economic Forum indicate that pressures of climate change and population growth may cause water shortages across majority of the United States. However, if we look at it from a positive perspective, there will be ample demand for water in the coming years.
In order to ride on the expected growth in the water industry, we can notice that companies like Eversource Energy (ES - Free Report) are venturing in the water space through acquisitions.
Rank and Price Performance
Currently, American Water has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of American Water have outperformed the industry in a year’s time.
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