American Water Works Company (AWK - Free Report) announced that its subsidiary, California American Water has entered into an agreement to acquire assets of Warring Water Service, a water utility located in Ventura County. Following the completion of this acquisition, California American Water will add nearly 514 water customers to the existing customer base in California.
California American Water, through its existing distribution network, serves nearly 690,000 people in California. The companies will now seek approval from the California Public Utilities Commission for the sale. The completion of the sale will ensure that Warring Water Service’s existing customers will start receiving high-quality water services from California American Water.
American Water Works has been on an acquisition spree, having completed acquisitions in Pennsylvania, Indiana and Kentucky over the past 45 days. Now, it is targeting the State of California for the same.
Consolidation to Drive Water Industry
The water and wastewater infrastructure in the United States is aging, and gradually nearing the end of its effective life. At present, more than 53,000 water systems in the United States provide water solutions to customers. Yet, the highly fragmented water industry creates operational challenges in meeting increasing requirement for water. Per an American Water Works Association (“AWWA”) report, in excess of 7 billion gallons of water leak out of aging pipes owing to more than 200,000 water line breaks per year in the United States.
Hence, consolidation in this highly fragmented industry is crucial and of utmost importance. Large water companies are striving to consolidate the industry by acquiring small water utilities and imparting high-quality services.
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 pursuing acquisitions. Consolidation will help improve the quality of water and wastewater services provided to the company’s expanding customer base.
Demand for Potable Water to Increase
Per a report by the United Nations, demand for potable water will continue to increase 1% yearly on a global scale, due to increase in population and change in consumption patterns. The report also states that the demand for water could increase 20-30% from the current levels by 2050.
Therefore, there is immense scope of growth in the water utility space from the present level. In order to take advantage of the expected growth in the water industry, we can notice that electric utility companies like Eversource Energy (ES - Free Report) are venturing into the water space through acquisitions.
Zacks 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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