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American Water Arm to Buy Granite City Wastewater System

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American Water Works Company (AWK - Free Report) announced that its subsidiary, Illinois American Water, has signed an agreement to acquire Granite City wastewater systems for $18 million. The acquisition will add 12,500 customers to its existing base in Illinois.

The company will apply to the Illinois Commerce Commission for approval of this buyout, which is expected to close in late 2020.

American Water’s Expanding Illinois Base

In 2019, Illinois American Water acquired the Alton Regional Wastewater System, Village of Godfrey’s wastewater system, and Village of Glasford’s water and wastewater systems. These acquisitions added 30,174 new customer connections to Illinois American Water.

Last week, the company entered in an agreement to acquire City of Jerseyville’s water and wastewater systems for $43.25 million. The buyout will add 8,200 customers to its base in the state.

Aging Water Industry Investment Holds the Key

Aging water and wastewater pipelines are major headwinds for the fragmented water industry in the United States. Per the U.S. Environmental Protection Agency, more than $744 billion is needed for U.S. water and wastewater infrastructure improvement.

According to an American Water Works report, more than 2 trillion gallons of treated water is lost per year due to leakage from aging pipes. The report also indicates that by 2020, nearly 44% of the U.S. pipeline infrastructure will be classified as poor, very poor or life elapsed.

So investment in this aging and fragmented water industry is quite essential. American Water recently increased regulated infrastructure investment by $800 million for the 2020-2024 capital plan and introduced a 10-year capital spending plan in the range of $20-$22 billion.

In addition to American Water, water utility Aqua America is making regular investments in water and wastewater systems. It is going to invest nearly $550 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 period.

It is evident that regular investments will be essential in the water utility space, and rates cuts since July this year will help the water utility operators to borrow funds at a cheaper rate and carry on their long-term infrastructure strengthening plans.

Price Performance

Shares of American Water have outperformed the industry in the past 24 months.



Zacks Rank and Key Picks

Currently, American Water has a Zacks Rank #3 (Hold). A couple of better-ranked water utilities are AquaVenture Holdings Ltd. and The York Water Company (YORW - Free Report) . AquaVenture sports a Zacks Rank #1 (Strong Buy) and The York Water Company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AquaVenture Holdings delivered average positive earnings surprise of 15.6% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 9.9% and 5.2%, respectively, in the past 60 days.

The York Water Company delivered average positive earnings surprise of 2.3% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 1.8% and 0.9%, respectively, in the past 60 days.

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