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Jacob Maslow
Jacob Maslow
Articles (156)  | Author's Website |

American Water to Buy Sundale Utilities

Company enters $2 million deal

May 29, 2018 | About:

American Water Works Co. (NYSE:AWK), the largest publicly traded water utility company in the U.S., announced its subsidiary, Illinois American Water, has agreed to buy Sundale Utilities Inc.'s water and wastewater system for $2 million.

The move would increase American Water's customer base.

Brad Spurgeon, vice president of Sundale Utilities, said significant investment needs and his retirement led to the sale.

"Guidelines have become more stringent and the investment needed to remain in compliance has grown beyond our capacity," he said. "A benefit of selling the systems to Illinois American Water is knowing they will make the critical investment needed and will care for our customers as we have over the years."

Illinois American Water has plans to invest $4.4 million into water main and water meter replacements and upgrades over the first five years of ownership. The investment includes safety and security improvements, including electrical upgrades and chemical storage. Illinois American also plans to complete a hydraulic study.

American Water has been steadily expanding its reach through acquisitions. It recently closed a $53.8 million deal to buy Alton's regional wastewater system.

Earnings

In early May, the company announced its first-quarter results exceeded Wall Street's expectations. The company posted revenue growth of about 1% year over year. Earnings per share increased by 13.5% to 59 cents. Analysts were expecting earnings per share of 55 cents.

Revenue came in at $761 million with net income of $106 million. The company posted $756 million in revenue and $93 million in net income in the same period last year.

In the first quarter of the year, American Water added 3,700 new customer connections through acquisitions and 1,500 customers through organic growth.

American Water reaffirmed its earnings guidance for the year. Adjusted earnings are expected to be between $3.22 and $3.32 per share, equating to 6.3% to 9.6% growth. During the earnings call, management said it expects earnings to be in the "upper half" of the range.

The company expects to invest $8 billion to $8.6 billion between 2018 and 2022, with a goal of improving earnings by 7% to 10% per year. About $7 billion will be allocated to strengthening the company's regulated businesses.

Consolidation

The U.S.'s aging water and sewage systems is fueling the consolidation trend in the water utility sector. Replacing and upgrading these systems can be costly for small water utilities. Companies with steeper pockets, like American Water, can make such investments, making a sale or merger more attractive.

Additional acquisitions could further expand American Water's customer base and bottom line. Along with acquisitions, the company continues to strengthen its organic operation and service areas.

American Water has already outperformed its industry. Over the last 12 months, the company's stock has gained 5.2% compared to the industry's rise of 3.7%.

The utility company still faces competition in the merger and acquisition game. Connecticut Water Service (NASDAQ:CTWS) recently announced a merger agreement with SJW Group (NYSE:SJW) through an all-stock transaction. The combined company will become one of the biggest water and wastewater providers in the U.S., with more than 1.5 million customers in multiple states.

Disclosure: The author does not own any stakes in the listed equities.

About the author:

Jacob Maslow

Jacob Maslow is a writer who began his career as a payroll manager. The same affinity for numbers that originally led him to an early career in accounting now comes in handy when it comes to understanding and working with marketing analytics.


A native of New York, Maslow is now based in the Middle East, where he lives with his wife and five children and provides high-quality services to clients in a variety of industries, including the legal, medical and financial sectors.


In addition to his marketing and consulting work, Maslow has founded a variety of news websites, including Legal Scoops. He is a frequent contributor to a variety of publications including business.com and business2community.com.

Visit Jacob Maslow's Website


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