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American Water Arm Seeks Nod for 2020 Infrastructure Upgrade

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American Water Works’ (AWK - Free Report) arm, West Virginia American Water filed an application with the Public Service Commission of West Virginia, seeking approval of the 2020 infrastructure replacement program and associated Distribution System Improvement Charge (“DSIC”).

West Virginia American Water aims to invest nearly $36 million to upgrade and improve the existing water system. Courtesy of the annual infrastructure upgrade program, the company has been able to lower its water main replacement cycle from 400 years to 100 years.        

The recent proposal includes a charge of 2.77%, which will result in an increase of $1.50 per month for the average residential customer using 3,132 gallons. The annual DSIC program entitles customers to receive a small monthly surcharge rather than experiencing higher rate increases several years later, which reflect multiple years of company investments.                    

Rate Hikes are Essential    
Per a latest assessment from the U.S. Environmental Protection Agency, water utilities in the country will need to make infrastructure investment of more than $384 billion by 2030 to ensure public health. Water utilities are investing regularly to expand, upgrade, and maintain water and wastewater infrastructure. Revision in rates by the commission helps sustain regular investments.

American Water aims to invest within $8-$8.6 billion from 2019 through 2023. The current investment target of West Virginia American Water is part of the company’s long-term investment plan. West Virginia American Water’s plans to replace water mains, repair water storage tanks, replace old water meters and    improve water treatment will ensure increase in reliability of its services.

Another water utility 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. Rate hikes assist this utility to recoup investments.

Price Movement

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

Zacks Rank and Other Key Picks

Currently, American Water has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ther top-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, 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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