American Water Unit Buys Water & Wastewater System For $1.9M

American Water Works Company (NYSE:AWK) announced that its subsidiary, Illinois American Water has completed the acquisition of the Village of Glasford water and wastewater system. This acquisition will add 492 and 482 water and wastewater customers, respectively, to its existing portfolio in Central Illinois. The consideration of the buyout of water and wastewater assets is $1.9 million.

The aging water and wastewater system of Village of Glasford needs immediate investments to upgrade the same, in order to provide high-quality potable water and sanitary services. Illinois American Water will make the required investments and construct a transmission water main from Timber-Logan Rural Water District to the Village of Glasford. This line will provide water that is treated and produced by Illinois American Water’s water-quality experts to residents in the Village of Glasford. Illinois American Water will also ensure upgrades to the sanitary sewer system.

Fragmented Water Industry

The U.S. water and wastewater industry is highly fragmented, which is a concern, as the overall water infrastructure in the United States is aging. At present, 53,000 water systems in the United States provide water and wastewater solutions to customers. Some water and wastewater service providers render services to a few hundred customers. The highly fragmented water industry creates operational challenges in meeting increasing requirement for water and sanitary services, 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.

Consolidation is essential for this fragmented industry as it is easy for large companies to take up massive upgradation work, without substantially increasing the rates unlike small operators. American Water is one of the most active players in the water space, having completed 74 deals from 2015 to date. As of Jun 31, the company added 30,700 customers to the existing customer base. 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, another water utility Aqua America (NYSE:WTR) is following the acquisition route to expand operations. During the five-year period ended Dec 31, 2018, the company had expanded utility operations by completing 64 water and wastewater system acquisitions.

Price Movement

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

Zacks Rank and Key Picks

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.

Some better-ranked water utility stocks in the same space are American States Water Company (NYSE:AWR) and The York Water Company (NASDAQ:YORW) , each having a Zacks Rank #2 (Buy).

American States Water and The York Water Company delivered average positive earnings surprise of 5.91% and 0.77%, respectively, in the last four quarters. The Zacks Consensus Estimate for American States Water and The York Water Company for the current year has moved up 6% and 1.8%, respectively, in the past 60 days.

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