American Water Works Company AWK announced that its subsidiary, New Jersey American Water, acquired the wastewater system assets of the Borough of Bound Brook, NJ, for $5 million. The acquisition will add 2,990 wastewater customers to the company’s existing 2.8 million customers. All these customers already receive water service from New Jersey American Water.
The aging of crucial water and wastewater infrastructure is concerning for the water industry of the United States. The highly fragmented industry, with its small number of operators and limited financial strength, leads to a delay in investment in essential repair and upgrades. The acquisition of smaller units by larger ones ensures the necessary investment in aging infrastructure. The acquisition marks New Jersey American Water's third wastewater acquisition in the last four years, expanding the customer base by more than 7,500.
Fragmented Water Industry Needs Consolidation
Per the Environmental Protection Agency, at present, more than 51,000 community water systems and 16,000 community wastewater systems in the United States are providing water solutions to customers. 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. The breaks in the pipeline result in the wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators.
The acquisition of small units by larger utilities ensures necessary investments for the upgrade of infrastructure and the continuation of high-quality services for customers. American Water continues to widen its market footprint through strategic acquisitions.
Essential Utilities WTRG, California Water Service Group CWT and SJW Group SJW, among others in the water utility space, are expanding operations through systematic acquisitions.
In the six-year period ended Dec 31, 2021, Essential Utilities expanded utility operations by completing many water and wastewater acquisitions, which, in turn, added 94,000 customers. In the first quarter of 2022, the company completed one acquisition, which added 11,000 customers.
Essential Utilities’ long-term earnings growth is currently pegged at 6.1%. The Zacks Consensus Estimate for WTRG's 2022 earnings implies year-over-year growth of 6.6%.
California Water Service recently received approval to acquire the water system assets of Skylonda Mutual Water Company. The acquisition is scheduled to close later this year, subject to customary closing conditions. In April 2022, another unit of California Water Service, New Mexico Water Service, closed the acquisition of Morningstar Water System, which added 2,000 water connections.
The Zacks Consensus Estimate for California Water Service's 2023 earnings implies year-over-year growth of 12.3%.
In January 2022, SJW Group closed the acquisition of Texas Country Water in Comal, TX. The acquisition added more than 1,900 water and wastewater customers to the existing customer base. This has been the fourth Texas acquisition by SJW Group in the past 12 months.
The Zacks Consensus Estimate for SJW Group's 2022 and 2023 earnings implies year-over-year growth of 16.3% and 7.4%, respectively.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
California Water Service Group (CWT) : Free Stock Analysis Report
SJW Group (SJW) : Free Stock Analysis Report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research