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American Water's (AWK) Arm to Invest $0.4M in Water Storage

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American Water Works Company (AWK - Free Report) announced that its subsidiary Illinois American Water is going to invest $400,000 for repair and maintenance of the 68,000 gallon water storage tank located on Walnut Street in the Village of Dana.

These essential repairs will extend the life of the 115-foot-tall storage tank that was constructed a decade ago. The maintenance work will start this month and is expected to be completed by September.

Why Investment is Needed in Water Industry?

The existing U.S. water and wastewater infrastructure is old, and requires immediate attention. Massive funding is needed to upgrade the quality of the U.S. water infrastructure. Per an American Water Works Association (“AWWA”) report, the cost of restoring aging underground water pipelines in the United States will be at least $1 trillion in the next 25 years. However, the total cost for overhaul of the existing U.S. water system will be much higher as the AWWA projection does not include cost of constructing new infrastructure, maintenance of storage tanks and repairing treatment plants.

American Water and its subsidiaries, which are quite proactive, continue to make regular investments to maintain and upgrade the old water and wastewater infrastructure. Recently, Illinois American Water announced that it is going to invest $650,000 to improve the water services that it provides to customers in the Pontiac area. (Read more: American Water Arm to Invest $0.65M in Water Treatment)

American Water aims to invest within $8-$8.6 billion from 2019 through 2023. The current investment of Illinois American Water is part of the company’s long-term investment plan.

Consolidation Can be Helpful to Water Industry

The U.S. water industry is highly fragmented and creates operational challenges for small operators. At present, only 7% of the country’s systems serve populations of more than 10,000 and a mere 1% serve populations in excess of 100,000. Hence, consolidation in this highly fragmented industry is essential. Big water companies are trying to acquire small water utilities and extend quality services.

American Water, which is one of the most active players in the water space, has already completed a few acquisitions in 2019. The company added 4,700 customers to the existing customer base, as of Apr 25. The pending acquisitions as of the same date, on completion, are expected to add nearly 61,500 customers to its customer base. American Water is currently on track to achieve the target. The company’s acquisition spree might result in the addition of more-than-expected customers to the existing customer base through acquisitions in 2019.

In addition to American Water, water utilities like Global Water Resources, Inc. (GWRS - Free Report) and Aqua America (WTR - Free Report) are following the acquisition route to expand operations.

Price Movement

Shares of American Water have outperformed the industry in a year’s time.

Zacks Rank and Key Pick

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.

A better-ranked water utility in the same space is Middlesex Water Company (MSEX - Free Report) , currently sporting a Zacks Rank #1.

Middlesex Water reported average positive earnings surprise of 19.72% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 5.9% and 4.7%, respectively, in the past 60 days.

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