California Water’s (CWT) Arm Purchases Driftwood Valley Water Assets – November 24, 2022 – Update Cali

California Water Service Group (CWT Free Report) recently announced that its subsidiary, Washington Water Service (Washington Water), has acquired the assets of the Driftwood Valley Association water system. The acquisition will expand Washington Water’s existing customer base by 62 customers. Washington Water also expects to serve new customers in the association once the 21 vacant lots are developed.

The company will continue to invest in the local water infrastructure in order to increase the resilience of the entire operation and provide quality services to current and future customers.

A fragmented industry needs consolidation

According to the Environmental Protection Agency, more than 51,000 community water systems and 16,000 community wastewater systems in the United States currently provide water solutions to customers. Due to the large number of small operators in the industry and the lack of adequate funding, major infrastructure upgrades and repairs are sometimes delayed.

According to the American Society of Civil Engineers, a water main break occurs every two minutes in the United States due to the aging of existing water infrastructure. Pipe breaks result in the loss of 6 billion gallons of potable water each day and contribute to losses for water utility operators. Aging and lack of timely maintenance are major contributors to pipeline failures.

The acquisition of small units by larger companies ensures the necessary investment in infrastructure modernization and the continuation of quality customer service.

Utilities Continue Consolidation

California Water Service is expanding its operations through strategic acquisitions. In October 2022, CWT received approval to acquire the wastewater system assets of Keauhou Community Services, Inc. The purchase is scheduled to close in the first quarter of 2023 and add 1,500 customers. That same month, Washington Water received approval to acquire the assets of Stroh’s Water Company, which will add an additional 900 customers upon closing by the first quarter of 2023.

Other water mains like American Waterworks (AWK free message) A group of SJWs (SJW Free message) a Basic tools (WTRG Free Report) expand operations through systematic acquisitions.

American Water Works continues to focus on acquiring utilities that serve 5,000-50,000 customers. Through nine closed acquisitions in four states, it added 79,300 customers to its base. AWK’s pending acquisitions (as of September 30, 2022) will add an additional 21,600 customers to its base when completed.

The Zacks Consensus Estimate for American Water Works’ earnings in 2022 suggests year-over-year growth of 4.9%. The company’s current dividend yield is 1.77%. The company currently has a Zacks Rank #3 (Hold).

SJW Group completed more than 25 acquisitions in the 2010-2021 timeframe and expanded operations. In January 2022, it closed on the acquisition of Texas Country Water in Comal, TX. The deal added more than 1,900 water and wastewater customers to its existing customer base. This is SJW Group’s fourth Texas acquisition in the past 12 months. Over the next five years, the company plans to invest $1.5 billion in further strengthening its infrastructure.

The Zacks Consensus Estimate for SJW Group’s earnings in 2022 and 2023 implies year-over-year growth of 15.7% and 6.8%, respectively. It currently has a Zacks Rank #3.

During the six years ended December 31, 2021, Essential Utilities expanded its utility operations by completing multiple water and wastewater acquisitions, which in turn added 94,000 customers. In the first quarter of 2022, the company completed one buyout that added 11,000 customers. Essential Utilities plans to invest $3 billion between 2022 and 2024 to strengthen operations and efficiently serve an expanding customer base.

Essential Utilities’ long-term earnings growth (three to five years) is currently set at 6.2%. The Zacks Consensus Estimate for WTRG’s earnings in 2022 and 2023 implies year-over-year growth of 6.6% and 6.5%, respectively. It currently has a Zacks Rank #3.

Price performance

CWT shares have gained 20.4% over the past six months, compared with the industry’s 7.2% rally.

Zacks Investment Research
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Zacks Rank

California Water Services currently has a Zacks Rank #3. You can see complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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