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American Water's (AWK) New Jersey Unit Upgrades Water Mains

American Water Works AWK recently announced that its unit, New Jersey American Water, will replace the aging water mains in Lumberton, NJ. The company will invest $3.3 million and replace the old 4-, 6- and 8-inch transite water lines that were installed in the 1950s with new 6-, 8- and 12-inch ductile iron mains. Along with the pipeline upgrade, it will replace nine fire hydrants and 329 utility-owned service lines along the pipeline route.

Replacement of the aging water mains is essential to ensure water quality and system pressures as well as increase system resiliency. The increase in water pressure in the new pipelines helps firefighters to control emergency situations. New Jersey Water regularly invests to upgrade, maintain and expand the existing water and wastewater infrastructure. It provides high-quality and reliable water and wastewater services to nearly 2.8 million people.

Investment Need in Aging Water Infrastructure

A significant portion of the existing water and wastewater pipelines in the United States has become old and is rapidly reaching the end of effective service life. To upgrade and refurbish the water infrastructure, substantial investment is required. Per the U.S. Environmental Protection Agency, a $473 billion investment is necessary to maintain and expand drinking water pipelines and $271 billion for wastewater pipelines to meet the demand over the next 20 years.

The U.S. government has made provisions to upgrade the aging water and wastewater assets. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades.

Pipeline breaks occur quite frequently in the United States, resulting in the wastage of 6 billion gallons of potable water each day, thereby adding to the loss of water utility operators.

Investments From Water Utilities

In addition to the government spending, investor-owned water utilities operating in the United States are also making systematic capital investments.
American Water Works plans to invest $13-$14 billion in the 2022-2026 time period and $28-$32 billion between 2022 and 2031 to upgrade as well as strengthen the existing water and wastewater infrastructure.

Other water utilities like Essential Utilities WTRG, California Water Service Group CWT and Middlesex Water MSEX have well-chalked-out capital investment plans to strengthen their infrastructure.

Essential Utilities aims to invest $3 billion through 2023 to strengthen water and natural gas operations. The current dividend yield of WTRG is 2.07%. WTRG pulled off an earnings surprise of 1.45% in the last four quarters, on average. The long-term (three to five years) earnings growth of Essential Utilities is pegged at 6.2%.

California Water Service reaffirmed 2021 capex estimates within the $270-$300 million range. Also, the midpoint of CWT’s capital expenditure planned for 2022, 2023, and 2024 is $355 million, $360 million, and $365 million, respectively. The current dividend yield of CWT is 1.39%. The Zacks Consensus Estimate for 2022 earnings for California Water Service has moved up 3.3% in the past 90 days.

Middlesex Water has plans to invest $200 million during the 2022-2023 time period to strengthen its water and wastewater infrastructure to provide services to customers in a safe, reliable, and efficient manner. The current dividend yield of MSEX is 1.06%. The Zacks Consensus Estimate for Middlesex Water’s fourth-quarter 2021 earnings indicates 4.3% year-over-year growth.

Shares of Essential Utilities, California Water Service, and Middlesex Water have returned 9.3%, 12.4%, and 11.8%, respectively, in the past six months.

Price Performance

Shares of American Water have gained 3.7% in the past six months compared with the industry’s 5.9% rally.

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Zacks Rank

American Water Works currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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