American Water Works' California Unit Prepares for Dry Months

American Water Works Company’s AWK unit, California American Water, has proactively prepared for the Aquifer Storage and Recovery (“ASR”) Program to have provision for an ample water supply when the need arises.

California American Water, along with Monterey Peninsula Water Management District, decided to capture and treat excess rainwater during winter storms when the flow levels of the Carmel River consistently exceeded 40 cubic feet per second. The excess water will be stored in the seaside basin for future use. This water reserve will ensure a more reliable water supply during the dry months.

What is the Need for an ASR Program?

ASR Program is a water resource management technique; the main purpose of this program is to store water underground when the water supply is abundant for future usage.

California American Water will gain from the ASR Program because this program is a cost-effective alternative to large surface projects, as it avoids evaporation during dry seasons and can supply water during emergency situations.

This ASR program will ensure a reliable water supply, help with customer retention and increase the customer base, as the company can smoothly meet the rising demand for water.

American Water Works Focused on Infrastructure Upgrades

The U.S. water and wastewater infrastructure is deteriorating, with water main breaks occurring every few minutes, according to the American Society of Civil Engineers. The pipeline breaks result in wastage of potable water and also increase the chances of water contamination.

American Water Works continues to make systematic investments to upgrade its infrastructure. AWK plans to invest $3.7 billion in 2026. In terms of its long-term capital expenditure plan, the company expects to invest $19-$20 billion during the period of 2026-2030 and $46-$48 billion during the period of 2026-2035.

Water Supply Industry Needs Huge Investments

The Environmental Protection Agency estimates that $1.25 trillion in investments will be needed over the next 20 years to maintain and upgrade drinking water, wastewater and stormwater systems.

The regulated water utilities are making investments to upgrade and maintain infrastructure. Apart from American Water Works, other water utilities like Essential Utilities WTRG and California Water Service Group CWT, among others, are also making investments to upgrade aging infrastructure.

Essential Utilities’ long-term plan is to invest $7.8 billion from 2025 to 2029 to rehabilitate and strengthen its water and natural gas pipeline systems. WTRG is able to reduce regulatory lag and facilitate growth through strategic acquisitions.

California Water Service Group plans to invest between $450.0 million and $550.0 million in 2025 to further strengthen its existing operations. CWT also stores water in the underground water aquifers, and its management believes that the water already stored in these aquifers is adequate to meet demand in 2025 and thereafter.

Price Movement of AWK

In the past three months, AWK’s shares have underperformed the industry it belongs to.

Zacks Rank & A Key Pick

American Water Works Company currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same industry is American States Water Company AWR, carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AWR has a long-term (three to five years) earnings growth rate of 5.65%. The Zacks Consensus Estimate for 2025 earnings has increased 1.22% to $3.32 per share in the past 60 days.

 

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This article originally published on Zacks Investment Research (zacks.com).

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