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Investing.com - Mizuho has lowered its price target on American Water (NYSE:AWK) to $145.00 from $149.00 while maintaining a Neutral rating following the company’s merger announcement with Essential Utilities. The utility company, currently trading at a P/E ratio of 25x and showing consistent dividend growth with an 8.2% increase over the last twelve months, has maintained dividend payments for 18 consecutive years according to InvestingPro data.
American Water Works Co., Inc. announced it will merge with Essential Utilities Inc (NYSE:WTRG) in a tax-free, all-stock transaction that will create a combined entity with a market capitalization of approximately $40 billion. The merger is expected to be completed by the first quarter of 2027. American Water currently commands a market cap of $27.9 billion and maintains a solid financial health score of 2.46 (FAIR) on InvestingPro’s comprehensive assessment framework.
Under the terms of the agreement, American Water shareholders will own approximately 69% of the combined company, while Essential Utilities shareholders will retain approximately 31% ownership. The merger represents a strategic expansion of service territory for American Water.
The combined company will operate across 17 regulated states, which American Water views as beneficial for improving customer growth and business diversification. American Water plans to maintain its earnings per share compound annual growth rate target of 7%-9%.
Mizuho estimates the merger will provide approximately $0.50 of accretion, though notes this figure could change depending on Essential Utilities’ local distribution company and American Water’s plans regarding gas operations.
In other recent news, American Water Works has announced a significant merger with Essential Utilities, creating a leading regulated U.S. water and wastewater public utility with an estimated pro forma market capitalization of $40 billion. The merger, structured as a tax-free all-stock transaction, positions the combined entity with a substantial enterprise value of approximately $63 billion. Additionally, Pennsylvania American Water, a subsidiary of American Water Works, completed the acquisition of Appalachian Utilities for $3.5 million, adding about 1,450 customer connections in Clinton County, Pennsylvania. In Illinois, another subsidiary, Illinois American Water, finalized the purchase of Madison’s wastewater system for $3 million, expanding its service area in the Metro East region. Missouri American Water, also part of American Water Works, has agreed to acquire the City of Neosho’s water and wastewater systems for $34.5 million, pending regulatory approval. Furthermore, New Jersey American Water is set to acquire Gordon’s Corner Water Company, with the transaction awaiting approval from the New Jersey Board of Public Utilities. These acquisitions and mergers reflect American Water Works’ strategic expansion in the water and wastewater industry.
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