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American Water's (AWK) Pennsylvania Arm to Invest in Upgrades

American Water Works AWK recently announced that its unit, Pennsylvania American Water, will invest $17.5 million in 2023 to upgrade and maintain eight of its water storage tanks and construct five new tanks to cater to the rising demand for water. The necessary upgrade and maintenance of the water tanks will assist the company to protect water quality and increase the effective service life of the storage tanks.

The Pennsylvanian unit has been upgrading and maintaining its water and wastewater infrastructure by replacing old water mains methodically and has invested nearly $490 million in 2022 for infrastructure upgrades. Proper infrastructure maintenance allows the company to serve its 2.3 million customers more efficiently.

Upgrades Essential for Water Industry

A substantial portion of water and wastewater infrastructure in the U.S. has aged and is nearing the end of its effective service life. Miles of aging pipelines essentially require repairs and upgrades to maintain quality water service. A delay in repair could cause frequent disruptions in the 24x7 supply of potable water and sewer services.

Per the U.S. Environmental Protection Agency, investments of $473 billion and $271 billion are necessary to maintain and expand drinking water and wastewater pipelines, respectively, to meet demand over the next 20 years. Water infrastructures, like storage tanks and purifying units, need maintenance at proper intervals.

Utilities Making Systematic Investment

Given the above-mentioned scenario, it is evident that systematic investments to upgrade and maintain the old infrastructure, as well as making provisions for adding new infrastructure, will assist the operators in meeting the rising customer demand. Water utilities are making systematic investments to replace and upgrade their aging infrastructure. The U.S. government is also providing funds to upgrade and maintain the same.

American Water Works aims to invest in the range of $14-$15 billion in the 2023-2027 period and $30-$34 billion for the 10-year period of 2023-2032. Water utilities like Essential Utilities WTRG, California Water Service Group CWT and Middlesex Water MSEX have well-chalked-out capital investment plans to strengthen their infrastructure.

Essential Utilities also plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve the water and natural gas systems and better serve customers using improved information technology. The Zacks Consensus Estimate for WTRG’s 2023 earnings indicates year-over-year growth of 5.1%. The long-term (three- to five-year) earnings growth of WTRG is currently pegged at 5.6%. The current dividend yield of Essential Utilities is 2.8%.

California Water Service plans to invest more than $725 million in capital expenditures through 2024. The Zacks Consensus Estimate for CWT’s 2023 earnings indicates year-over-year growth of 3.9%. The current dividend yield of California Water Service is 1.9%.

Middlesex Water plans to invest $266 million during 2023-2025 to strengthen its water and wastewater infrastructure and provide services to customers in a safe, reliable and efficient manner. The Zacks Consensus Estimate for MSEX’s 2023 and 2024 revenues indicates year-over-year growth of 5.9% and 4.7%, respectively. The current dividend yield of Middlesex Water is 1.6%.

Price Performance

Shares of AWK have rallied 2.5% in the past three months compared with the industry’s 1.5% return.

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Zacks Investment Research
Zacks Investment Research


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Zacks Rank

American Water Works currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report

California Water Service Group (CWT) : Free Stock Analysis Report

Middlesex Water Company (MSEX) : Free Stock Analysis Report

Essential Utilities Inc. (WTRG) : Free Stock Analysis Report

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