New Jersey affiliate of American Water (AWK) purchases Salem City assets

American Waterworks AWK announced that its subsidiary, New Jersey American Water, has completed the acquisition of the city of Salem, New Jersey’s water and wastewater systems for $18 million.

On May 22, 2024, the New Jersey Public Utilities Board approved a municipal consent permitting New Jersey American Water to provide service to Salem City customers following the closing of the transaction. These former municipally owned systems serve over 2,300 water customers and 2,300 wastewater customers.

Under the agreement, New Jersey American Water will spend more than $50 million on upgrades over the first 10 years of the agreement. These expenditures include a comprehensive capital improvement plan that includes implementing PFNA treatment, significant system improvements, and maintaining the city’s aging water and wastewater infrastructure.

The need for investment and consolidation

Aging water and wastewater infrastructure and delays in necessary upgrades are a concern for the industry. According to the American Society of Civil Engineers, nearly 50,000 municipal water systems and 16,000 wastewater treatment systems in the United States currently provide water solutions to customers. Some service providers are too small and financially constrained to make necessary and costly repairs in a timely manner, leading to pipeline damage, service disruptions and increased contamination risks.

To ensure the expansion of high-quality services to customers and the investment needed to modernize existing and acquired assets, large water utilities are acquiring small players. Drinking water and wastewater systems will require at least $896 billion in additional investment over the next 20 years, according to estimates by the U.S. Environmental Protection Agency.

New Jersey American Water has made six acquisitions over the past six years. After completing its takeover of the Egg Harbor City water and wastewater system in June 2023, New Jersey American Water added more than 1,500 new water customers and 1,500 new wastewater customers under the state’s Water Infrastructure Protection Act.

AWK has 26 planned acquisitions (as of March 31, 2024), which, once finalized, should increase its customer base by another 66,800 customers. Acquisitions allow the company to attract new demand for its services and expand its revenue stream.

American Water plans to invest $3.1 billion in 2024. Most of that will be used to improve infrastructure at regulated utilities. It aims to invest $16 billion to $17 billion between 2024 and 2028 and $34 billion to $38 billion between 2024 and 2033.

Peer movements

Apart from AWK, other companies, e.g California Water Services Group CWT i Essential tools WTRG also expands its business through acquisitions and investments.

In May 2024, CWT subsidiary California Water Service acquired the water system assets of Kings Mountain Park Mutual Water Company. In January 2024, CWT subsidiaries Hawaii Water Service and New Mexico Water Service acquired the assets of HOH Utilities, LLC and Monterey Water Company, respectively. This added almost 2,200 new customers.

In the first quarter of 2024, CWT made capital investments of $109.8 million, an increase of 34% year-over-year, to improve its infrastructure. Estimated capital expenditures for 2024 will amount to USD 380 million. In order to expand its operations, the company continues to purchase water and sewage systems.

Essential Utilities is actively exploring opportunities to expand its utility business through the acquisition of utility assets. Since 2015, it has been developing its media operations, making many acquisitions in the field of water and wastewater management, increasing the number of 129,000 customers.

Essential Utilities plans to invest $1.3 billion to $1.4 billion in 2024 on more than 5,000 planned projects and $7.2 billion from 2024 to 2028 to improve water and gas systems to better serve customers.

Price performance

Over the past three months, AWK shares are up 6.5% compared with the industry’s growth of 2.5%.

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Zacks Rank and Stocks to Consider

AWK is currently sporting a Zacks Rank #3 (Hold).

Companies from the same industry are valued better Primo Water PRMW. The company currently carries a Zacks Rank of #2 (Buy). You can see see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PRMW’s long-term earnings growth rate (three to five years) is 15.47%. The Zacks Consensus EPS estimates for 2024 represent a 53.2% year-over-year improvement.

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