Yahoo Finance California Water's (CWT) Arm Closes Water System Assets Buyout
California Water Service Group CWT recently announced that its subsidiary, Washington Water Service (Washington Water), has completed the acquisition of Bethel Greenacres Water Association’s water system assets. The deal was closed after it received approval from the Washington Utilities and Transportation Commission (WUTC) in February 2023.
Benefits of the Buyout
Since September 2022, Washington Water has been serving Bethel Greenacres customers through an operation and maintenance agreement. The Bethel Greenacres system includes 200 residential customer connections, adjacent to Washington Water’s East Pierce system.
The acquisition of Bethel’s water system assets would give Washington Water access to these 200 connections, which would increase CWT’s customer count. Such improvements can be expected to boost the company’s revenues in the future.
The acquisition is also expected to bolster CWT’s strategic investment plans to support the provision of safe, reliable water service for both routine and emergency needs.
Rationale Behind the Acquisition
Per the American Society of Civil Engineers ("ASCE"), more than 50,000 community water systems and 16,000 community wastewater systems in the United States are currently in service.
Per the ASCE finding, 6 billion gallons of treated water go waste every day in the United States due to a delay in essential pipeline repairs and maintenance. Essential upgrades and infrastructure repairs get delayed at times, owing to lack of adequate funds and a large number of small operators in the industry.
The acquisition of small units by larger utilities is the need of the hour, as it ensures necessary investments for infrastructure upgrade and continuation of high-quality services to customers. The reason behind CWT’s aforementioned acquisition appears to be the same.
Water Utilities Continue to Consolidate
California Water Service has been expanding operations through strategic acquisitions to offer infrastructural upgrades and reliable services to customers. The latest acquisition is a testament to the same.
In November 2022, Washington Water Service acquired Driftwood Valley Association’s water system assets. This is expected to add 62 customers to CWT’s database. Also, in October 2022, Washington Water received approval to acquire Stroh’s Water Company’s assets, which will add another 900 customers on closing by the first quarter of 2023.
Other water utilities like American Water Works AWK, Consolidated Water Co. CWCO and Essential Utilities WTRG are also expanding operations through systematic acquisitions.
American Water Works continues to expand operations through acquisitions and organic means. In 2022, AWK added 70,000 customers through 26 closed acquisitions in seven states. AWK’s 21 pending acquisitions (as of Dec 31), when completed, will add another 32,400 customers.
The Zacks Consensus Estimate for AWK's 2023 earnings implies a 5.8% increase year over year. Its current dividend yield is 1.9%.
In January 2023, Consolidated Water acquired the remaining 39% of PERC Water Corporation's equity ownership for $7.8 million. PERC’s strong operating performance, revenue growth and profitability, as well as its synergies with other areas of CWCO’s business and future growth prospects, are expected to boost CWCO’s performance.
The Zacks Consensus Estimate for the company’s 2023 earnings implies a 143.5% increase year over year. The company’s current dividend yield is 2.3%.
In 2022, Essential Utilities acquired three water and wastewater systems, which expanded its customer base by 23,000. Recently, Essential Utilities signed eight purchase agreements to acquire nine additional water and wastewater systems for $380 million. These systems are expected to serve 219,000 retail customers or equivalent dwelling units.
The Zacks Consensus Estimate for WTRG's 2023 earnings implies year-over-year growth of 5.7%. The company’s current dividend yield is 2.7%.
Price Performance
In the past month, the California Water Service Group stock has lost 5.5% compared with industry's 6.2% decline.
Image Source: Zacks Investment Research
Zacks Rank
California Water Service Group 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
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Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
