California Water (CWT) agrees to acquire HOH Utilities

California Water Services GroupCWT’s unit, Hawaii Water Service, has received regulatory approval from the Hawaii Public Utilities Commission to acquire the assets of HOH Utilities, LLC. This acquisition will further expand California Water Service’s operations in Kauai County. The sale of assets is subject to customary closing conditions.

The acquisition of HOH Utilities’ assets will add 1,800 customers to CWT’s existing customer base in California.

Operation expansion

Prior to this acquisition, in June 2022, another California Water Service entity, Texas Water Service, in partnership with BVRT Utility, further expanded its customer base by completing the acquisition of Railyard Utility’s wastewater treatment system. This acquisition increases California Water Service’s existing customer base in California by 345 customers, and once the community is established, the utility anticipates serving an additional 150 customers.

California Water Service’s customer base grew 0.8% year over year in 2021. The company is making efforts to expand its business organically and inorganically. In 2022, CWT’s customer base is likely to continue to grow.

Modernizing aging water and wastewater infrastructure requires massive investment, and the California Water Service is making systematic investments to further strengthen its infrastructure. The company invested $293.2 million in 2021 and $68.5 million in the first three months of 2022. The company also expects to invest $1,080 million between 2022 and 2024 to modernize its infrastructure.

Zacks Rank and Price Performance

California Water Service is currently sporting a Zacks Rank of #4 (Sell). Over the past month, CWT shares are up 4.2% versus an industry decline of 2.7%.

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

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Takeovers by water companies

According to the Environmental Protection Agency, more than 51,000 municipal water systems and 16,000 municipal wastewater systems in the United States currently provide water solutions to customers. The highly fragmented water industry creates operational challenges as much of the water and wastewater infrastructure reaches the end of its effective life.

The takeover of small units by larger companies ensures the necessary investments in infrastructure modernization and continued high-quality services to customers. Some companies in the water and sewage industry are expanding their operations through acquisitions American Waterworks AWK, Essential tools WTRG i SJW group SJW.

American Water Works continues to expand its market reach through strategic acquisitions. In July 2022, AWK acquired the Upper Pottsgrove Township sewer system assets in Montgomery County, Pennsylvania. This acquisition is expected to add 1,550 wastewater customers to American Water Works’ existing customer base of 2.4 million.

During the six years ended December 31, 2021, Essential Utilities expanded its utility business with multiple water and wastewater acquisitions, which in turn added 94,000 new customers. In the first quarter of 2022, the company finalized one acquisition, thanks to which it gained 11,000 customers.

In January 2022, SJW Group completed the acquisition of Texas Country Water in Comal, Texas. This acquisition added over 1,900 water and wastewater customers to its existing customer base. This is SJW Group’s fourth Texas acquisition in the last 12 months.

The Zacks Consensus Estimate for AWK, WTRG and SJW’s 2022 earnings is for year-over-year growth of 4.9%, 6.6% and 15.8%, respectively.

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