American Water (AWK) Looks A Solid Bet: Should You Buy?

American Water Works (NYSE:AWK) has been consistently gaining from increased customer base as it continues to add customers and expand market reach through acquisitions and organic growth. An additional 45,000 customers are expected to be added once the pending acquisition deals are completed in 2017. In fact, American Water Works has added 26,400 consumers through closed acquisitions and organic growth, year to date.

The company has been also making efforts to widen footprint through strategic acquisitions. Towards this, it has successfully added 42,000 more customers through acquisitions.

Consolidation of the age-old infrastructure is the need of the hour in the fragmented U.S. water utility space, which needs ample investments. Consequently, it is necessary to make infrastructure overhauls which are imperative for the industry at large where players like American States Water Company (NYSE:AWR) , Global Water Resources, Inc. (NASDAQ:GWRS) and The York Water Company (NASDAQ:YORW) also operate.

Being not an exception, American Water Works aims to invest nearly $1.65 billion in 2017, with $1.3 billion directed toward its water and wastewater system improvements and upgrades. On a long-term perspective, the company plans to invest $6.7-$7.3 billion from 2017 through 2021. This robust capital expenditure plan is expected to aid in improving the company’s earnings by 7-10% per year in the aforesaid period from 2015 base.

Additionally, the company continues to improve operational efficiency through systematic cost savings and increase in revenues. In this line it aims to lower O&M efficiency ratio to 32.5% in 2021 from the year-to-date level of 34.2%.

However, unfavorable weather pattern hampered demand for water and allied services provided by the company. Also, American Water Work incurred an increased cost of capital services, due to rising interest rates.

Price Movement

American Water Works returned 24.7% in the last 12 months, outperforming the 23.4% rally of the industry it belongs to. This can be attributed to the solid investment plan that the company boasts.

Zacks Rank

American Water Works carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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