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American Water Arm to Invest $6M for Water Storage Upgrades

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American Water Works Company (AWK - Free Report) announced that its unit, Pennsylvania American Water has unveiled plans to invest $6.1 million in 2020 to rehabilitate seven water storage tanks in its service areas. This is part of Pennsylvania American Water’s planned infrastructure investment of $362 million in 2020.

Properly maintained water storage tanks ensure 24x7 supply of potable water to customers and provide fire protection to communities. Pennsylvania American Water has been active in maintaining storage tanks and has already invested more than $34 million to maintain, rehabilitate, and construct the same. The company will continue to invest in the same as it has more than 250 water storage tanks to provide service to customers.

Regular Investment 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 Works recently introduced a 10-year capital spending plan in the range of $20-$22 billion.

In addition to American Water, Essential Utilities (WTRG - Free Report) 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.

Fragmented Water Industry

The U.S. water industry is highly fragmented, with 50,000 water and 15,000 wastewater operators currently providing services. 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 country 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.

Consolidation in the fragmented water industry can provide a solution to the above problem. American Water is quite active in acquiring small service providers and expanding operations in the United States. The company completed five acquisitions in four states till May 6, 2020, which added 6,200 customers to the customer base. The pending acquisition deal as of May 6, 2020, on completion, will increase its customer base by 45,800.

In addition to American Water, other water utilities like Global Water Resources, Inc. (GWRS - Free Report) and Essential Utilities are taking the inorganic route to expand operations in the United States.

Price Performance

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

Zacks Rank and A Key Pick

Currently, the company has a Zacks Rank #3 (Hold). A 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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