American Water's (AWK) Unit Wins Another Contract From DOD

American Water Works (NYSE:AWK) announced that its unit, Military Services Group has been awarded a contract for operation and maintenance of water and wastewater systems at Joint Base San Antonio (“JBSA”) in Texas. The duration of the contract, which is valued at $448 million and subject to an annual economic price adjustment, is 50 years.

Indeed, the company’s existing partnership with the Department of Defense (“DOD”) and commitment of providing safe and reliable water and wastewater services to 14 military bases have helped it to win this long-term contract from JBSA.

This contract will take the total tally of its military awards to 15 and we expect the company to win more defense deals, given high-quality water and wastewater service capabilities. It is poised to gain from customer addition through both organic and inorganic means.

Investment to Strengthen Operations

The U.S. Environmental Protection Agency (“EPA”) report estimates that more than $743 billion is needed for U.S. water and wastewater infrastructure improvements. As government funding will not be enough, private operators are doing their bit to improve the U.S. water and wastewater infrastructure. Importantly, aging and soiled waste and wastewater pipelines need regular capital investment.

American Water Works is quite active and is making regular investments to improve water quality, as well as monitor the source of water supply. The company aims to invest within $8-$8.6 billion in the 2019-2023 time frame to provide improved services to the expanding customer base.

Another water utility Aqua America (NYSE:WTR) aims at making capital investment in excess of $550 million in 2019, as part of its investment target of more than $1.4 billion in the 2019-2021 time period.

Price Performance

Year to date, shares of American Water have outperformed the industry.

Zacks Rank & 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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