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American Water’s Unit to Buy Wastewater System for $53.8M


American Water Works Company Inc. AWK continues to expand operations in the United States via acquisitions. The company announced that its subsidiary, Illinois American Water entered into an agreement to acquire Alton’s regional wastewater system for $53.8 million. This acquisition will increase American Water Works’ customer volume by 23,000.

Illinois American Water has been successfully providing water service to Alton since the past 140 years. The company’s commitment to provide wastewater services is an extension of the existing partnership between the City of Alton and Illinois American Water. Subject to all necessary approvals, this acquisition is expected to close in the first quarter of 2019.

Bigger Picture

Consolidation is the need of the hour in the fragmented U.S. water utility space. The water utility infrastructure in the United States is getting old and needs ample investments, easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.

American Water Works Company is very active and keeps on making strategic acquisitions to expand its footprint. In 2017, the company added 39,514 customers via acquisitions. American Water Works is in discussions to acquire another 23,000 customers through acquisitions.

Another water utility, Connecticut Water Service CTWS announced that it has entered into a definite agreement to merge with SJW Group SJW in an all-stock transaction. The combined company will become one of the largest water and wastewater service providers in the United States, and serve more than 1.5 million customers in multiple states. (Read more: Connecticut Water Service to Merge With SJW Group)

Price Movement

In a year’s time, shares of American Water Works have outperformed its industry. The stock has gained 4.2% compared with the industry’s rally of 3.7%.

Zacks Rank & Key Pick

American Water Works has a Zacks Rank #3 (Hold). A better-ranked stock in the same space worth considering is Global Water Resources Inc. GWRS, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Global Water Resources reported positive earnings surprise of 100% in fourth-quarter 2017 and its long-term earnings growth is pegged at 15%. Its 2018 earnings estimate moved up 16.7% in the last 60 days to 14 cents.

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