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American Water's (AWK) Unit Buys Valley Township Assets

American Water Works Company AWK announced that its subsidiary, Pennsylvania American Water, has acquired the water and wastewater system assets of Valley Township, Chester County. Pennsylvania American Water, through this acquisition, will be providing water services to 1,700 customers and wastewater services to nearly 2,900 customers in the region. A purchase price of $21.275 million has been approved by the Pennsylvania Public Utility Commission.  

All small water and wastewater service providers have one thing in common, i.e., they are unable to make the necessary investments required to upgrade and maintain the aging infrastructure. As a consequence, it is difficult for them to provide adequate and reliable services to customers. Large service providers like Pennsylvania American Water ensure the much-needed investments that are necessary to maintain and upgrade the aging assets.

Pennsylvania American Water has plans to invest nearly $5.8 million in Valley Township water and wastewater system improvements. These improvements include upgrading or replacing water and wastewater mains, technology and control systems, pump station, and meters, among others.

In 2020, Pennsylvania American invested $400 million to strengthen its infrastructure. Systematic investments have also been made this year to upgrade, replace, and maintain water and wastewater infrastructure. Courtesy of the systematic investments, Pennsylvania American provides high-quality and reliable water and wastewater services to nearly 2.4 million people.

Consolidation Essential in Fragmented Water Industry

The U.S. water utility industry is fragmented and upgrading the aging assets to provide high-quality quality services is the need of the hour. Per Environmental Protection Agency, at present, more than 53,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers.

This highly fragmented industry creates operational challenges in meeting the requirement for replacement, and adding to aging water and wastewater infrastructure. Acquisitions of small water utilities by bigger companies ensure the extension of high-quality services to customers and the investments required for the upgrade of old acquired assets.

Water Utilities Carry Out Acquisitions

American Water Works continues to actively expand the business through the inorganic route. From the start of the year till Nov 1, 2021, the company expanded the customer base by 7,450 through acquisitions. Its pending acquisitions (as of Nov 1), when completed, will add another 82,700 customers to the customer base. In addition to American Water Works, other water utilities like Essential Utilities WTRG, The York Water Company YORW and California Water Service Group CWT, among others, have been making acquisitions to expand operations.

Essential Utilities completed two acquisitions, which added 7,430 new customers. At present, there are seven pending acquisition deals, which, when completed, will add 234,075 new customers to Essential Utilities’ existing customer base.

York Water completed three acquisitions in 2020 and expanded its certificated territory to three more municipalities. York Water further expanded operations in the United States in 2021 with the closing of major acquisitions.

California Water Service Group entered into an agreement to acquire four assets and the deal will close after the necessary approvals. These pending acquisitions, when complete, will add up to 3,400 water connections and 4,700 wastewater connections to California Water Service Group’s customer base.

The Zacks Consensus Estimate for 2021 earnings for Essential Utilities, The York Water Company, and California Water Service Group has moved up 5.7%, 1.6%, and 0.5%, respectively, year over year.

Price Performance

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

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Zacks Rank

American Water Works currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The York Water Company (YORW): Free Stock Analysis Report
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