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American Water (AWK) Missouri Unit to Invest in Water Mains

Zacks Equity Research
·4 min read

American Water Works AWK recently announced that its unit, Missouri American Water, will invest $52 million for replacing nearly 18 miles (95,000 feet) of water mains in Missouri. American Water’s unit will upgrade old 4-inch, 6-inch and 8-inch mains originally installed between the 1920s-1960s with new 12-inch and 16-inch ductile iron mains.

Replacement of the aging water mains is essential to ensure water quality and system pressures as well as increase system resiliency. The increase in water pressure in the new pipelines helps firefighters control emergency situations. The water supply infrastructure improvement will allow Missouri American Water to serve 1.5 million customers more efficiently.

Aging Water Infrastructure a Concern

A substantial portion of the existing water and wastewater pipelines in the United States is aging and nearing the end of the effective service life. The aging of pipelines causes pipeline breakage every day in the United States, resulting in the wastage of priceless potable water.

Per the findings of the American Society of Civil Engineers (“ASCE”), water main breaks occur every two minutes in the United States due to the aging of the existing water infrastructure. Per the ASCE finding, a delay in essential pipeline repairs and maintenance results in the loss of 2.1 trillion gallons of treated water every year in the United States.

Frequent pipeline breaks result in the wastage of potable water and increase the risk of contamination. Hence, it is quite essential to make systematic investments for the repair and maintenance of the old infrastructure.

Systematic Investment a Must for Water Industry

Given the current condition of the water and wastewater infrastructure, it is quite essential for utility operators and the U.S government to make the required investment to upgrade the pipelines. Per the U.S. Environmental Protection Agency, a $473 billion investment is necessary to maintain and expand drinking water pipelines and $271 billion for wastewater pipelines to meet the demand over the next 20 years.

The U.S. government has made provisions to upgrade the aging water and wastewater assets. The American Jobs Plan has provisions for $111 billion in water and wastewater infrastructure upgrades.

American Water plans to invest $13-$14 billion in the 2022-2026 time period and $28-$32 billion between 2022 and 2031 to upgrade as well as strengthen the existing water and wastewater infrastructure. Other 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 aims to invest $3 billion through 2023 to strengthen water and natural gas operations. The current dividend yield of WTRG is 2.17%. WTRG pulled off an earnings surprise of 1.45% in the last four quarters, on average. The long-term (three to five years) earnings growth of Essential Utilities is pegged at 6.2%.

California Water Service reaffirmed 2021 capex estimates within $270-$300 million. Also, the midpoint of CWT’s capital expenditure planned for 2022, 2023, and 2024 is $355 million, $360 million, and $365 million, respectively. The current dividend yield of CWT is 1.47%. The Zacks Consensus Estimate for 2022 earnings for California Water Service has moved up 3.2% in the past 90 days.

Middlesex Water has plans to invest $200 million during the 2022-2023 time period to strengthen its water and wastewater infrastructure to provide services to customers in a safe, reliable as well as efficient manner. The current dividend yield of MSEX is 1.14%. The Zacks Consensus Estimate for Middlesex Water’s 2022 earnings indicates 14.4% year-over-year growth.

Shares of Essential Utilities, California Water Service, and Middlesex Water have returned 2.2%, 4.2%, and 5.1%, respectively, in the past six months.

Price Performance

Shares of American Water have lost 0.8% in the past year compared with the industry’s 2.7% growth.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Zacks Rank

American Water Works currently has a Zacks Rank #4 (Sell).

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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Zacks Investment Research