American Water Unit's Wastewater System Buyout Gets Nod

A subsidiary of water utility American Water Works Company Inc. (NYSE:AWK) , Kentucky American Water has received the necessary approval from the Kentucky Public Service Commission to purchase Classic Construction, Inc.’s wastewater system.

The assets earmarked for the acquisition serve Franklin County’s Ridgewood subdivision and some adjoining areas. Kentucky American Water is expected to offer wastewater services to customers in the area starting Oct 7.

Kentucky American Water has an excellent reputation for its customer services, which will now be extended to residents in the Ridgewood area.

Customer Additions

The purchase will add nearly 107 customers to American Water Work’s existing customer base, which is seemingly negligible compared to the company’s present 15 million across 47 states in the U.S. and in Ontario, Canada.

American Water Works’ management aims to add 55,400 customers through acquisitions in 2016 and the latest transaction is a step in that direction.

Recent Acquisition

Earlier this month, another American Water Works’ subsidiary, California American Water, entered in agreement to acquire the McKeesport wastewater system for an aggregate value of $156 million. The acquisition added nearly 22,000 wastewater customers to its existing customer base. (Read more: American Water Unit to Buy McKeesport Wastewater System)

Consolidation – The Way to Go

We all need 24x7 reliable water and wastewater services at reasonable costs. However, the cost of maintaining and upgrading aged wastewater systems is going up. This makes it an uphill task for small local operators to keep up with the rising expenses of upgrading existing water infrastructure. So, 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.

During the first half of 2016, American Water Works closed 10 acquisitions, adding 7,556 customers to its existing customer base. Another 13 acquisitions are still pending, which will add 47,845 customers to its existing base.

Another water utility Aqua America Inc. (NYSE:WTR) is equally active on the acquisition front, having completed three acquisitions in the second quarter of 2016.

Zacks Rank & Key Picks

American Water Works currently has a Zacks Rank #3 (Hold). A couple of better-ranked water stocks are Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) and California Water Service Group (NYSE:CWT) .

Companhia de Saneamento Basico do Estado de Sao Paulo’s earnings estimates witnessed an increase of 41.8% for 2016 to 95 cents over the last 60 days. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

California Water Service saw its earnings estimates rise 0.9% for 2016 to $1.04 over the last 60 days. The company carries a Zacks Rank #2 (Buy).

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