American Water Works Unit Buys Grafton Wastewater System

Water supply and wastewater service provider American Water Works Company (NYSE:AWK) announced that its unit Illinois American Water has completed an acquisition which brought in nearly 400 customers.

Though the number is insignificant if we consider the 15 million customers already served by American Water Works through its extensive network of water infrastructure, we believe these mini additions extend market penetration of the company and expand its customer base.

American Water Works’ unit acquired the City of Grafton’s wastewater system, near Alton in southern Illinois for $0.6 million. Illinois American Water has been providing quality service in the City of Grafton since Sep 2010.

Illinois American Water had acquired the local water system in Aug 2013 and the current acquisition of the wastewater system completes the full cycle. Through the acquisition of both water and wastewater system in the City of Grafton, the company would ensure a high level of service to the region’s customers.

Consolidation is the need of the hour in the fragmented U.S. water utility space. The old water utility infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.

American Water Works continues to widen its footprint through strategic acquisitions. During the first quarter, the company closed seven acquisitions adding 6,868 customers to its existing customer base.

American Water Works also has plans to invest $6.4 billion in the 2016–2020 time frame to strengthen its existing water infrastructure with $5.5 billion to be used to strengthen its regulated businesses. We believe the company’s organic and inorganic initiatives are paving the way for robust long-term growth.

Zacks Rank

American Water Works currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in in the water utility space include Consolidated Water Co. Ltd. (NASDAQ:CWCO) , Artesian Resources Corp. (NASDAQ:ARTNA) and Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) , all of which carry a Zacks Rank #2 (Buy).

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