American Water Unit Acquires McKeesport Wastewater For $159M

American Water Works Company Inc. (NYSE:AWK) announced that its subsidiary, Pennsylvania American Water, has completed the acquisition of the wastewater system assets of the Municipal Authority of the City of McKeesport for $159 million. The acquisition has resulted in the addition of 22,000 customers to the company’s existing customer base.

This deal also ensures no increase in base wastewater rates for one calendar year after the closing.

Acquisition Boosts Growth

The old water and wastewater infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would, therefore, drive the necessary infrastructure overhauls for the industry at large.

Year to date, the water utility has added 48,400 customers through closed acquisitions and organic growth and will add another 21,700 customers when all the pending acquisitions are completed.

During November 2017, American Water Works announced that its subsidiary — Indiana American Water — has completed the acquisition of Georgetown Water System, serving customers in Southern Indiana. The buyout worth $6.4 million will increase the company’s customers by 1,300. (Read More: American Water Unit Acquires Georgetown Water for $6.4M)

Investment to Upgrade Aging Infrastructure

The U.S. water infrastructure in quite old and massive investment is required to upgrade the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Investment of billions of dollars is required for the purpose.

American Water Works anticipates to invest in the range of $8-$8.6 billion over the span of next five years. Out of the planned expenditure, $7.2 billion will be directed to regulated business.

Aqua America Inc. (NYSE:WTR) a water utility, has plans to make capital investments of more than $450 million in 2017 as part of an ambitious investment target of more than $1.2 billion in the 2017-2019 period.

Water utility, Connecticut Water Services (NASDAQ:CTWS) has spent $66.3 million on capital projects, a little higher than its initial investment plan of $65.9 million. Its capital expenditure budget for 2017 is $56 million to fund improvements in water treatment plants and increase spending to boost infrastructure. Management has already approved a plan to invest $66.2 million in capital projects in 2018.

Price Movement

Shares of American Water Works have outperformed the industry in the last 12 months. The stock has gained 23.6% compared with the industry’s growth of 22.2%.

The company is well poised to benefit from strategic acquisitions and regulated investments to strengthen the existing infrastructure, which, in turn, is expanding customer base and providing a boost to its top line.

Zacks Rank & Another Key Pick

American Water Works currently has a Zacks Rank #2 (Buy). Another water utility with the same Zacks Rank is The York Water Company (NASDAQ:YORW) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The York Water Company, reported a positive earnings surprise of 10.7% in the third quarter. Its 2017 earnings estimates moved up 3.1% to 99 cents in the last 60 days.

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