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American Water Arm Buys Village of Shiloh Wastewater System

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American Water Works Company (AWK - Free Report) announced that its subsidiary, Illinois American Water has completed the acquisition of the Village of Shiloh Wastewater System for $3.6 million. This acquisition will add 1515 wastewater customers to its existing customer base in the southern Illinois service area.

The buyout will also ensure that the Village Shiloh Wastewater system is provided with the much-needed investments. The company will work on improving both the Church and Archview lift stations.

Illinois American Water provides reliable water and wastewater services to 1.3 million people in Illinois. This American Water Works’ unit is quite active in expanding its service territory in Illinois through acquisitions. In April, the company acquired the Village of Sidney water system for $2.3 million, which added 560 water customers to the existing customer base.

Role of Consolidation

Consolidation is quite essential for the fragmented water industry, as nearly 50,000 water and 15,000 wastewater operators are currently providing services in the United States. It becomes extremely difficult for small service providers to invest a large sum to upgrade and repair old water mains.

Billions of gallons of potable water are lost in the United States every year due to numerous pipeline breaks across the United States on a daily basis. Since a larger number of existing water and wastewater pipelines are gradually nearing the end of their service life, this is resulting in breakage, thereby increasing the risk of contamination of potable water.

Hence, water utilities are actively acquiring small water and wastewater service units, as well as making the required investments to upgrade the quality of services. Global Water Resources, Inc. (GWRS - Free Report) is taking the inorganic route to expand operations in the United States. Another water utility, Essential Utilities (WTRG - Free Report) not only expanded water and wastewater operations through acquisitions but also ventured into the natural gas distribution business through the acquisition of Peoples.

Billions Needed For 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, Essential Utilities is also making regular investments in water and wastewater systems. Its long-term plan is to invest $2.8 billion in the 2020-2022 time period to rehabilitate and strengthen the existing water and natural gas pipeline systems.

Price Performance

Shares of American Water have outperformed the industry in the past 12 months.

Zacks Rank and Another Key Pick

Currently, the company has a Zacks Rank #2 (Buy). Another top-ranked water utility is American States Water Company (AWR - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American States Water delivered average positive earnings surprise of 6.5% in the last four quarters. The Zacks Consensus Estimate for 2020 and 2021 earnings has moved up 3.2% and 4.3%, respectively, in the past 90 days.

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