Aqua America Expands Operation, To Exit 2017 On A High Note

Aqua America Inc. (NYSE:WTR) continues to expand its operation through organic growth and strategic acquisitions. The water and wastewater service provider will exit 2017 on a high note buoyed by the addition of 7,100 new customers through organic growth and nearly 1,000 customers through four completed acquisitions.

Aqua America has six pending acquisitions and delay in the completion of these acquisitions due to ongoing challenges has prompted the company to lower its customer growth guidance of 1.5-2% for 2017 to 1%.

Acquisitions Help

Consolidation is the need of the hour for the fragmented U.S. water utility space. This will enable big utilities to make the necessary infrastructure overhauls that have become imperative for the industry at large.

During the five-year period ending Dec 31, 2016, Aqua America expanded its utility operations by completing 84 acquisitions or other growth ventures. The company is expected to continue with its strategic acquisitions going forward. It mainly focuses on municipal water and wastewater systems with 2,500 to 25,000 customers, for the buyouts.

A water utility, American Water Works Company Inc. (NYSE:AWK) also follows an inorganic route to expand its operations. Year to date, it 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.

Investment to Upgrade 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. So, apart from acquisitions, water utilities are also investing to upgrade their existing asset base.

Aqua America 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.

Another 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

Aqua America’s stock has gained 30.0% in the last 12 months, outperforming the 21.9% rally of the industry.

The company benefits from acquisitions, investment in infrastructure upgrades and rate hikes in its service territories.

Zacks Rank & A Key Pick

Aqua America currently has a Zacks Rank #3 (Hold). Another water utility with the better 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, a Zacks Rank#2 (Buy) stock 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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