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American Water (AWK) Gains From Investments & Acquisitions
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American Water Works Company (AWK - Free Report) , through its extensive and expanding infrastructure, continues to provide water and wastewater services to more than 15 million customers in the United States. The company’s systematic investments to strengthen operations and strategic acquisitions continue to bolster its position in the industry.
The company delivered an average surprise of 5.04% in the last four quarters. The Zacks Consensus Estimate for AWK’s 2023 earnings per share has moved up 5.8% year-over-year to $4.77.
Tailwinds
American Water has plans to invest in the range of $14-$15 billion in the 2023-2027 period and $30-$34 billion in the next decade. The company is on track to invest nearly $2.9 billion in 2023, with a major portion to be utilized for infrastructure improvements in Regulated Businesses.
AWK’s capital investment is backed up by rate revisions by the commission per application from the company. American Water has been benefiting from rate increases. New rates, effective Jan 1, 2023, will add $279 million to annual revenues. The pending rate case, if approved without any change, will further increase the top line by $144 million. The ongoing expansion of the rate base will have a positive impact on its earnings over the long term.
Consolidation is the need of the hour in the fragmented U.S. water utility space and American Water continues to widen its market footprint through strategic acquisitions. From the start of 2023 until Mar 31, 2023, the company expanded its customer base by 1,400 through organic means and acquisitions. Its pending acquisitions (as of Mar 31), when completed, will add another 48,200 customers to the customer base. In 2022, the company expanded its customer base by 70,000 through 26 closed acquisitions in seven states.
Headwinds
Despite the ongoing upgrades, a major portion of the existing water lines and mainline is nearing the end of their effective usage life, increasing the possibility of breakage in the water mains and creating disruption in water services.
Investments in Water Space
Per 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 the existing water infrastructure. Pipeline breaks result in the waste of 6 billion gallons of potable water each day and add to the losses of water utility operators. The pipeline breaks not only increase the cost of water services but also expose it to the possibility of contamination.
Per the Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain and expand drinking water as well as wastewater services to meet demand over the next 20 years.
Water utility California Water Service (CWT - Free Report) plans to invest in the range of $270-$300 million in 2021 to strengthen its water and wastewater infrastructure. Another water utility, Middlesex Water (MSEX - Free Report) —is making regular capital investments to enhance system reliability, resiliency and overall service quality. The company has plans to invest $266 million during 2023-2025 to strengthen its water and wastewater infrastructures. Essential Utilities (WTRG - Free Report) plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve water and natural gas systems and better serve customers using improved information technology.
Price Performance
Shares of American Water have underperformed the industry in the past six months.
Image Source: Zacks Investment Research
Zacks Rank
American Water Works currently has a Zacks Rank #3 (Hold).
Image: Shutterstock
American Water (AWK) Gains From Investments & Acquisitions
American Water Works Company (AWK - Free Report) , through its extensive and expanding infrastructure, continues to provide water and wastewater services to more than 15 million customers in the United States. The company’s systematic investments to strengthen operations and strategic acquisitions continue to bolster its position in the industry.
The company delivered an average surprise of 5.04% in the last four quarters. The Zacks Consensus Estimate for AWK’s 2023 earnings per share has moved up 5.8% year-over-year to $4.77.
Tailwinds
American Water has plans to invest in the range of $14-$15 billion in the 2023-2027 period and $30-$34 billion in the next decade. The company is on track to invest nearly $2.9 billion in 2023, with a major portion to be utilized for infrastructure improvements in Regulated Businesses.
AWK’s capital investment is backed up by rate revisions by the commission per application from the company. American Water has been benefiting from rate increases. New rates, effective Jan 1, 2023, will add $279 million to annual revenues. The pending rate case, if approved without any change, will further increase the top line by $144 million. The ongoing expansion of the rate base will have a positive impact on its earnings over the long term.
Consolidation is the need of the hour in the fragmented U.S. water utility space and American Water continues to widen its market footprint through strategic acquisitions. From the start of 2023 until Mar 31, 2023, the company expanded its customer base by 1,400 through organic means and acquisitions. Its pending acquisitions (as of Mar 31), when completed, will add another 48,200 customers to the customer base. In 2022, the company expanded its customer base by 70,000 through 26 closed acquisitions in seven states.
Headwinds
Despite the ongoing upgrades, a major portion of the existing water lines and mainline is nearing the end of their effective usage life, increasing the possibility of breakage in the water mains and creating disruption in water services.
Investments in Water Space
Per 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 the existing water infrastructure. Pipeline breaks result in the waste of 6 billion gallons of potable water each day and add to the losses of water utility operators. The pipeline breaks not only increase the cost of water services but also expose it to the possibility of contamination.
Per the Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain and expand drinking water as well as wastewater services to meet demand over the next 20 years.
Water utility California Water Service (CWT - Free Report) plans to invest in the range of $270-$300 million in 2021 to strengthen its water and wastewater infrastructure. Another water utility, Middlesex Water (MSEX - Free Report) —is making regular capital investments to enhance system reliability, resiliency and overall service quality. The company has plans to invest $266 million during 2023-2025 to strengthen its water and wastewater infrastructures. Essential Utilities (WTRG - Free Report) plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve water and natural gas systems and better serve customers using improved information technology.
Price Performance
Shares of American Water have underperformed the industry in the past six months.
Image Source: Zacks Investment Research
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.