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American Water Arm Acquires Town of Glasgow Water System

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American Water Works Company AWK announced that its subsidiary, West Virginia American Water has completed the acquisition of Town of Glasgow water system. This acquisition will add 300 customers to its existing customer base in West Virginia.

This acquisition will ensure that the aging water system of Town of Glasgow is provided with the much needed investments. American Water Works will assist in leak detection and system repairs of water systems of the utility, which has historically experienced water loss of nearly 66%.

Post-acquisition, the previous customer rate of $30.35 per 3,000 gallons will increase to $34.56. The rate will continue to increase annually until December 31, 2023, when customers will reach the company’s standard rates as set by the Public Service Commission.

Consolidation is Essential

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. Consolidation is quite essential for the fragmented water industry, as nearly 50,000 water and 15,000 wastewater operators are providing services in the United States.

The highly fragmented water industry creates operational challenges in meeting increasing water and wastewater service requirement. Hence, water utilities are actively acquiring small water and wastewater service units, and making required investments to upgrade the quality of services.

Investments in Water Industry

Per the U.S. Environmental Protection Agency, more than $744 billion is needed for U.S. water and wastewater infrastructure improvement. Hence, investment in this aging and fragmented water industry is quite essential. American Water recently introduced a 10-year capital spending plan in the range of $20-$22 billion.

In addition to American Water, water utility Aqua America WTR is also making regular investments in water and wastewater systems. Its long-term plan is to invest $1.4 billion through 2021 to rehabilitate and strengthen the existing systems.

Price Performance

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

Zacks Rank and Key Picks

Currently, American Water has a Zacks Rank #4 (Sell). A couple of better-ranked water utilities include AquaVenture Holdings Ltd. and Veolia Environnement SA VEOEY. AquaVenture sports a Zacks Rank #1 (Strong Buy) and Veolia Environnement SA 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 2020 earnings has moved up 6.9% in the past 90 days.

Veolia Environnement SA (VEOEY) has a long-term (three to five years) earnings growth rate of 9.7%. The Zacks Consensus Estimate for earnings for 2020 has moved up 0.6% in the past 60 days.

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