CAMDEN, NJ - The Pennsylvania Commonwealth Court has issued an order on Thursday, September 26, 2024, dismissing appeals against the acquisition of Butler Area Sewer Authority's wastewater assets by Pennsylvania-American Water, a subsidiary of American Water (NYSE:AWK) Works Company, Inc. (NYSE:AWK).
The court's decision paves the way for the completion of the $230 million deal, which had been contested by Center Township and Summit Township following the Pennsylvania Public Utility Commission's (PaPUC) approval on November 9, 2023.
The acquisition, which was first approved without modification by the PaPUC, involves the purchase of public wastewater collection and treatment system assets serving approximately 15,000 customer connections across various municipalities, including the City of Butler and parts of Butler, Center, Connoquenessing, Summit, and Oakland Townships.
Despite the court's order, there remains a possibility for further challenges to the acquisition. However, Pennsylvania American Water is proceeding to finalize the transaction expeditiously.
American Water Works Company, in its SEC filing, has cautioned that forward-looking statements regarding the acquisition involve estimates, assumptions, and risks that could cause actual results to differ materially from expectations. Factors that may affect the outcome include the completion of necessary steps to close the acquisition, potential further appeals or challenges, timing of the closure, and expected benefits and synergies of the acquisition.
The company has also noted that there could be unexpected costs, liabilities, or delays associated with the acquisition or integration of the system assets. Regulatory, legislative, or local actions affecting the water and wastewater industries could also impact the business.
In other recent news, American Water Works has seen significant developments in its financial performance and regulatory cases. The company has reported a strong performance in the second quarter and first half of 2024, raising its earnings per share (EPS) guidance for the year to $5.25-$5.30, despite a minor decrease in quarterly EPS. The company's investments in capital projects have reached $1.4 billion year-to-date, and it has added 43,000 customers through acquisitions and organic growth.
American Water Works has also reached settlements in both Virginia and New Jersey rate cases, resulting in an annual revenue increase of $14.6 million and $79.5 million respectively. BofA Securities has resumed its coverage on the company's stocks, assigning an underperform rating and setting a price target of $140.00. The firm's projections estimate American Water Works' EPS for the years 2024, 2025, and 2026 to be $5.28, $5.70, and $6.12 respectively.
John Bigelow has been announced as the new president of American Water Works. Despite potential legal challenges in Pennsylvania that could affect the timing of benefits from acquisitions, the company has secured $266 million in annualized new revenues and rates, with total annualized revenue requests pending at $546 million. The company's long-term targets, including a 7%-9% earnings and dividend growth over five years, remain affirmed.
InvestingPro Insights
As American Water Works Company, Inc. (NYSE:AWK) moves forward with its significant $230 million acquisition of Butler Area Sewer Authority's wastewater assets, investors may find additional context from recent financial data and expert insights valuable.
According to InvestingPro data, AWK currently has a market capitalization of $28.24 billion, reflecting its position as a major player in the water utility sector. The company's revenue for the last twelve months as of Q2 2024 stood at $4.36 billion, with a healthy revenue growth of 7.68% over the same period. This growth aligns with the company's expansion strategy, as evidenced by the Butler Area acquisition.
InvestingPro Tips highlight that AWK has raised its dividend for 10 consecutive years, demonstrating a commitment to shareholder returns. This is particularly relevant in the context of the company's growth initiatives, as it suggests AWK has been able to balance expansion with maintaining shareholder value. The company's dividend yield stands at 2.14%, which may be attractive to income-focused investors in the utility sector.
Another InvestingPro Tip notes that AWK has maintained dividend payments for 17 consecutive years, underscoring its financial stability even as it pursues acquisitions like the Butler Area deal. This track record of consistent dividends could provide reassurance to investors concerned about the potential risks and uncertainties associated with the acquisition, as mentioned in the company's SEC filing.
For those interested in a deeper analysis, InvestingPro offers additional tips and insights that could be valuable in assessing AWK's financial health and growth prospects in light of this acquisition and other market factors.
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