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American Water's (AWK) Unit Buys Hillview Water Company

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American Water Works Company (AWK - Free Report) announced that its subsidiary, California American Water has closed the agreement to acquire Hillview Water Company. This acquisition will add 1,500 wastewater customers to the company’s existing customer base in California.

California American Water provides reliable water and wastewater services to more than 690,000 residents in California. Through this acquisition, American Water Works’ unit will extend high-quality services to new customers.

It has been very active in acquiring small water and wastewater service providers, as well as expanding operations. As of Jun 24, 2020, the company completed 10 acquisitions, which added 10,769 customers to the existing customer base. The remaining 21 acquisitions as of Jun 24, 2020, when completed, will add more than 41,231 customers.

Why Consolidation is Important in Water Space?

The U.S. water and wastewater infrastructure is ageing and gradually approaching toward the end of service life.  Billions of gallons of potable water are lost in the United States every year due to thousands of pipeline breaks across the country on a daily basis, the primary reason being delay in replacing old and soiled water and wastewater pipelines. The pipeline breaks also increase the possibility of contamination of potable water.

The role of consolidation becomes extremely vital here as it is extremely difficult for small service providers to invest a large sum to upgrade and repair old water mains. As it is, 50,000 water and 15,000 wastewater operators are currently providing services in the United States. Some of these operators are not large enough to accommodate the costly infrastructure upgrade expenses.

Hence, large water utilities are actively acquiring small water and wastewater service units, as well as ensuring investments to upgrade the quality of services. American Water Works is quite active in acquiring small service providers. Global Water Resources, Inc. (GWRS - Free Report) is also 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.

Price Performance

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

Zacks Rank and Key Pick

Currently, the company has a Zacks Rank #3 (Hold). A better-ranked water utility is American States Water Company (AWR - Free Report) , which holds a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American States Water delivered average positive earnings surprise of 5.9% in the last four quarters. The Zacks Consensus Estimate for 2020 and 2021 earnings has moved up 1.8% and 2.5%, respectively, in the past 60 days.

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