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California Water (CWT) Arm, BVRT Duo Buys Wastewater System

·3-min read

California Water Service Group CWT announced that its unit, Texas Water Service, closed the acquisition of Railyard Utility’s wastewater system by collaborating with BVRT Utility Holding Company. The acquisition will further expand Texas Water Service’s operations near BVRT’s plum creek utility and windy hill utility systems in the Austin metropolitan area. Railyard Utility's wastewater system is the fifth utility that Texas Water Service and BVRT have jointly owned and acquired.

The acquisition of Railyard Utility’s wastewater system, renamed as Spanish Trail Utility, will add 345 customers to California Water Service’s existing customer base in California. CWT also anticipates serving an additional 150 customers once the community is built.

Strengthening Operations via Acquisitions & Investments

California Water Service’s customer base increased year over year by 0.8% in 2021. The company is making efforts to expand operations organically and inorganically. CWT’s customer base is likely to further expand in 2022.

Before this acquisition, in April 2022, California Water Service’s another unit, New Mexico Water Service, closed the acquisition of Animas Valley Land and Water, LLC’s Morningstar Water System, which added 2,000 water connections to the existing customer base.

The aging of the water and wastewater pipelines is currently a big concern for the industry and requires consistent investments in infrastructure to maintain quality services. California Water Service invested $293.2 million in 2021 and $68.5 million in the first three months of 2022. The utility also expects to invest $1,080 million in the 2022-2024 period for upgrading infrastructure.

Zacks Rank & Price Performance

California Water Service presently has a Zacks Rank #4 (Sell). In the past month, shares of CWT have declined 6.9%, narrower than the industry’s decline of 10.6%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Acquisitions by Water Utilities

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 for customers. The highly fragmented water industry creates operational challenges as a large portion of water and wastewater infrastructure is nearing the end of an effective service life.

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. Some companies in the water industry expanding operations through acquisitions are American Water Works AWK, Essential Utilities WTRG and SJW Group SJW.

American Water Works continues to widen its market footprint through strategic acquisitions. In 2021, the company expanded its customer base by 20,000 through 23 closed acquisitions in six states.

American Water Works’ long-term (three to five years) earnings growth is currently pegged at 8.1%. The Zacks Consensus Estimate for AWK’s 2022 earnings implies year-over-year growth of 4.9%.

During the six years ended Dec 31, 2021, Essential Utilities expanded utility operations by completing many water and wastewater acquisitions, which, in turn, added 94,000 new 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 5.1%.

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 is the fourth Texas acquisition by SJW Group in the past 12 months.

SJW Group delivered an average earnings surprise of 0.4% in the last four quarters. The Zacks Consensus Estimate for SJW’s 2022 earnings implies year-over-year growth of 15.8%.

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