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American Water's Arm to Invest $1.8M to Improve Water System

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American Water Works Company (AWK - Free Report) announced that its subsidiary Illinois American Water is going to invest $1.8 million to improve water services to the City of Farmington. The investment will be directed to replace one mile of old water mains and improve a water treatment plant. The water main will be upgraded from 4-inch and 6-inch water main to 8-inch and 10-inch water main, which will increase water flow and pressure.

Post the acquisition of Farmington water system last year, the company had invested $0.4 million to update the electrical and security systems at the water treatment plant. Illinois American Water also replaced 1,000 water meters to improve billing for customers.

This move will help the company to strengthen its existing water infrastructure in this region and serve customers more efficiently. Illinois Water has been investing on a regular basis to upgrade, maintain and expand water operations. In 2018, the company had invested more than $122 million in infrastructure upgrade. It intends to invest more than $100 million during the current year to upgrade to critical water and wastewater infrastructure across its Illinois service areas.

Investment Essential for 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 a latest assessment from the U.S. Environmental Protection Agency, the water utilities in the country will need to make infrastructure investments of more than $384 billion by 2030 to ensure public health.

Another report from American Water Works Association indicates that in excess of 7 billion gallons of water leak out of aging pipelines due to more than 200,000 water line breaks per year in the United States. Hence, regular investment in the water space from water utility operators will help in replacing the aging water infrastructure and prevent the wastage of precious resources.

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. In addition to American Water, water utilities like Aqua America Inc. (WTR - Free Report) announced that it is going to invest more than $555 million in 2019 to strengthen its water and wastewater infrastructure. This will be part of Aqua America’s investment target of more than $1.4 billion in the 2019-2021 time period.

Price Movement

Year to date, shares of American Water have outperformed the industry.

Zacks Rank and Key Picks

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.

Some better-ranked water utility stocks in the same space include Middlesex Water Company (MSEX - Free Report) and Global Water Resources, Inc. (GWRS - Free Report) .

Middlesex Water, sporting a Zacks Rank #1, reported average positive earnings surprise of 19.72% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 5.8% and 4.7%, respectively, in the past 60 days.

Global Water Resources, which has a Zacks Rank #2 (Buy), reported average positive earnings surprise of 39.58% in the last four quarters. Its long-term (three to five years) earnings growth is pegged at 15%. The Zacks Consensus Estimate for 2019 has moved up 15.4% in the past 60 days.

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