American Water Works Company (AWK – Free Report) recently announced that its subsidiary, Illinois American Water, has acquired the assets of the Village of Hardin, IL, water and wastewater system. This acquisition will add 435 water customers and 405 wastewater customers to the company’s 1.3 million existing customers.
This acquisition further expanded Illinois American Water’s operations in Illinois and is worth $3.3 million. The American Water unit is committed to investing $3 million to improve the existing water and wastewater infrastructure in the Village of Hardin and ensure high quality services to its customers.
Illinois American Water expanded its operations in Illinois through acquisitions. Since 2020, Illinois American Water has added nearly 26,000 new customer connections to its customer base across Illinois through acquisitions. The company has made plans and will implement them to improve water and wastewater services for its new customers.
Acquisitions in the fragmented water industry
The US water and wastewater industry is quite fragmented. Much of the infrastructure used to deliver services has aged and is approaching the end of its useful life. Repair delays lead to pipeline breaks and a waste of valuable resources.
According to the Environmental Protection Agency, currently more than 51,000 community water systems and 16,000 community sanitation systems in the United States provide water solutions to customers. According to the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States due to the aging of existing water infrastructure. Pipeline ruptures waste 6 billion gallons of drinking water every day and add to the loss of water service operators.
The acquisition of small units by larger utilities ensures the investments needed to upgrade infrastructure and continue high-quality services for customers. American Water Works continues to expand its market presence through strategic acquisitions. In 2021, the company grew its customer base by 20,000 through 23 acquisitions completed in six states.
Other companies in the water sector, which are expanding their activities through acquisitions, are Essential utilities (WTRG – free report) and California Water Utility Group (CWT – free report).
In the six-year period ended December 31, 2021, Essential Utilities expanded its utility business by completing numerous water and wastewater acquisitions, which in turn added 94,000 new customers . In the first quarter of 2022, the company completed an acquisition, which added 11,000 customers.
Essential Utilities’ long-term earnings growth is currently pegged at 6.1%. Zacks consensus estimate for WTRG earnings in 2022 implies 6.6% year-over-year growth.
California Water Service recently received approval to acquire the water system assets of Skylonda Mutual Water Company. The acquisition is expected to close later this year, subject to customary closing conditions. In April 2022, another California Water Service unit, New Mexico Water Service, completed the acquisition of Morningstar Water System from Animas Valley Land and Water, LLC, which added 2,000 water connections.
The Zacks consensus estimate for California Water Service earnings in 2023 implies 9.3% year-over-year growth.
Price performance
Shares of AWK have gained 7.6% in the past month compared to the industry’s 7.4% rally.
Image source: Zacks Investment Research
Zacks rank and key choice
American Water currently has a Zacks rank of #2 (buy). Another prominent title in the same space is Consolidated Water Co Ltd. (CWCO – Free report) currently having a Zacks rank #2.
Consolidated Water has delivered an average surprise of 36.5% over the past four quarters. The Zacks consensus estimate for Consolidated Water’s 2022 earnings rose 26.4% to 67 cents over the past 60 days.
Consolidated Water’s long-term earnings growth is currently pegged at 8%. The CWCO’s current dividend yield is 2.4%.
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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