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American Water (AWK) Arm Files for $950M Investment Recovery

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American Water Works Company (AWK - Free Report) announced that its unit Missouri American Water has filed a request with the Missouri Public Service Commission (MoPSC) to review its water and sewer rates. The rate revision request includes $920 million in water system improvements and $30 million in sewer system enhancement from January 2018 to May 2022.

Aging water and wastewater infrastructure of the United States requires regular investment for upgrades and maintenance. American Water is quite active in making regular investments in its service territories and maintaining the water mains. American Water has plans to invest $8.8-$9.4 billion in the 2020-2024 time period and $20-$22 billion in the next decade. These investments will allow it to maintain and expand its existing water infrastructure and provide reliable water services to the expanding customer base.

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.

Importance of Rate Revisions

Amid this unprecedented economic crisis caused by the novel coronavirus outbreak, with millions of Americans in financial distress, the timing of rate filing might be questioned. However, despite the COVID-19 crisis, American Water continued with capital projects and ensured 24x7 services to customers. Rate hike in a way will ensure the funds required for maintenance and upgrade of infrastructure, which increases resilience of American Water’s water and sewer services.

So, the regulated utilities, apart from making investment in infrastructure, also need to recoup the investments from customers through rate hikes at regular intervals. American Water has been benefiting from rate increase since the beginning of 2019. The new water rates (effective Jan 1, 2020) will increase American Water’s total revenues by $55 million. It still has rate cases worth $233 million pending in various jurisdictions, awaiting final order.  American Water’s systematic investment plan is assisting it in the expansion of the rate base, which in turn will have a positive impact on earnings over the long term.

Courtesy of implementation of new rates, earnings of another water utility, American States Water Company (AWR - Free Report) , improved year over year in first-quarter 2020.

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 Middlesex Water Company (MSEX - Free Report) , presently holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Middlesex Water Company delivered average positive earnings surprise of 2.19% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 2.5% in the past 90 days.

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