American Water Buys Boone-Raleigh Water Distribution System

American Water Works Company (NYSE:AWK) announced that its subsidiary West Virginia American Water has completed the acquisition of the Boone-Raleigh Public Service District (“PSD”) water distribution system. This acquisition will add 470 new customers to its existing portfolio.

In addition, the latest buyout will provide much-needed relief to customers of Boone-Raleigh PSD. This water system is old, and in need of substantial upgrades and infrastructure replacements, including the water treatment plant that has received multiple deficiencies from the West Virginia Department of Health and Human Resources. The acquisition will ensure that the required upgrade is effectuated, minimizing the possibility of water outages. Also, customers will receive high-quality services at reasonable costs owing to the same.

Consolidation is Crucial for Water Industry

Currently, more than 53,000 water systems in the United States provide water and wastewater solutions to customers. Water and wastewater service providers are servicing a few hundred customers. The highly fragmented water industry creates operational challenges in meeting increasing requirement for water, as it becomes difficult for small water suppliers and wastewater service providers to make regular investments for upgrading old and soiled water and wastewater lines.

According to an American Water Works Association report, in excess of 7 billion gallons of water leak out of aging pipes owing to more than 200,000 water line breaks per year in the United States. Plus, the report stated that old sewer systems increase the possibility of contamination of potable water sources. Hence, consolidation in this highly fragmented industry is crucial and of utmost importance.

American Water — which is one of the most active players in the water space — has already added 30,700 customers to the existing customer base, as of Jul 31. The pending acquisitions as of the same date, on completion, are expected to add nearly 38,200 customers to its customer base.

In addition to American Water, water utilities like Global Water Resources, Inc. (NASDAQ:GWRS) and Aqua America (NYSE:WTR) are following the acquisition route to expand operations.

Price Movement

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

Zacks Rank and Key Pick

Currently, American Water has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked water utility in the same space is American States Water Company (NYSE:AWR) , sporting a Zacks Rank #1. It delivered average positive earnings surprise of 5.91% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 2.5% and 0.5%, respectively, in the past 60 days.

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