American Water Unit Acquires Oxbow Marina Mutual Water

American Water Works Company Inc. (NYSE:AWK) announced that its subsidiary, California American Water, has completed the acquisition of Oxbow Marina Mutual Water Company. California American Water will begin servicing Oxbow Marina’s customers from Jul 18, 2017.

Oxbow Marina’s historic water system was old. Moreover, the water supplied exceeded state and federal maximum contaminant levels for arsenic. Hence, upgrading the existing system was essential to meet the state-regulated potable-water standard.

Post acquisition, Oxbow Marina’s water system is connected with California American Water’s Isleton arsenic treatment plant. This will allow the water utility to provide high quality service to the customers of the region.

Acquisition is Essential

The old water and wastewater infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would, therefore, drive the necessary infrastructure overhauls for the industry at large.

American Water is among the largest water utility operators in the U.S., with around 15 million customers in 47 States as well as Ontario, Canada. The company continues to expand its operation through strategic acquisitions.

Recently, American Water’s unit, Illinois American Water, acquired assets of Forest Homes-Maple Park Public Water District, which added 500 customers to its existing base (read more: American Water Unit Acquires Water System in Alton District).

Water Space Needs Investment

Per the survey of the U.S. Environmental Protection Agency (EPA), massive investments will be required to upgrade the existing old and soiled water and wastewater infrastructure. To avoid the risk of contamination and wastage of potable water, there should a concerted effort to replace and upgrade some of the century-old mains and pipelines that are still in use. An excess of $600 billion will be required to upgrade the water and wastewater systems in the next 20 years.

American Water is systematically upgrading its entire infrastructure. For 2017, the company’s capital investment budget is $1.5 billion, with $1.3 billion directed toward its water and wastewater system improvements and upgrades. It aims to invest $6.7–$7.3 billion from 2017 through 2021, which will help it improve earnings by 7–10% per year in the aforesaid period from a 2015 base.

Another water utility, Aqua America Inc. (NYSE:WTR) , aims to make capital investments of over $450 million in 2017, which is part of an ambitious investment target of over $1.2 billion in the 2017–2019 period. Meanwhile, Connecticut Water Service (NASDAQ:CTWS) aims to invest more than $150 million in the 2017–2019 time frame to strengthen its existing infrastructure.

We believe all these investments will gradually help to upgrade the existing water infrastructure.

Price Movement

In the last six months, American Water's shares returned 10.9%, outperforming the Zacks categorized Utility –Water Supply industry ’s gain of 10.6%.

The utility is well poised to benefit from regulated investments to strengthen existing infrastructure as well as strategic acquisitions, which, in turn, are expanding customer base and providing a boost to the top line.

Zacks Rank

American Water currently holds a Zacks Rank #2 (Buy). Another top-ranked stock in the same space is Consolidated Water Co. Ltd. (NASDAQ:CWCO) , having a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Consolidated Water reported average positive earnings surprise of 8.9% in the last four quarters. Its 2017 earnings estimates moved up 15.5% to 67 cents over the last 90 days.

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