American Water's Unit To Acquire East Pasadena Water Company

American Water Works Company (NYSE:AWK) announced that its subsidiary, California American Water has entered into an agreement to acquire assets of East Pasadena Water Company, a water utility located in Los Angeles County. Following the completion of this acquisition, California American Water will add nearly 10,000 residents in Temple City, Arcadia and the East Pasadena area to the existing customer base in California.

California American Water, through its existing distribution network, serves nearly 690,000 people in California. The companies will now seek approval from the California Public Utilities Commission for the sale. The completion of the sale will ensure that East Pasadena Water Company’s existing customers will start receiving high-quality water services from California American Water.

California American Water is expanding operation in the state of California through acquisitions. Last week, the company signed an agreement to acquire assets of Warring Water Service (read more: American Water's Unit to Buy Assets of Warring Water Service).

Consolidation is Crucial for Water Industry

At present, more than 53,000 water systems in the United States provide water solutions to customers. The highly fragmented water industry creates operational challenges in meeting increasing requirement for water, as it becomes difficult for small water suppliers to make regular investments for upgrading the old and soiled water and wastewater lines.

Per an American Water Works Association (“AWWA”) 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. 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 completed a few acquisitions in 2019 and the pending ones, on completion, are expected to add nearly 61,000 customers to its customer base during the year. American Water is currently on track to achieve its target. The company’s acquisition spree might result in the addition of more-than-expected customers to its existing customer base through acquisitions in 2019.

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 operation.

Price Movement

Shares of American Water have outperformed the industry in a year’s time.

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 Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp (NYSE:SBS) , sporting a Zacks Rank #1. The company reported average positive earnings surprise of 4.31% in the last four quarters. The Zacks Consensus Estimate for 2019 and 2020 has moved up 12.6% and 11.7%, respectively, in the past 30 days.

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