American Water Works Co. (AWK) may be among the companies that most benefit from regulatory and industry changes after the chemical spill on West Virginia’s Elk River, according to Brean Capital analyst Michael Gaugler.
“We see the potential for swift, decisive industry and regulatory action in the U.S. water industry,” Gaugler wrote today in a note to clients. He cited infrastructure and related upgrades following natural gas distribution line explosions in the U.S., when companies “suddenly became very focused on getting the oldest pipe out of the ground.”
The Environmental Protection Agency may speed its timetable for expanding contaminant regulations, which would bolster business for large water companies. It may also provide potential acquisition and outsourcing contracts for France’s Veolia Environnement SA (VIE) and Suez Environnement Co. (SEV) and the largest water operators in the U.S. such as American Water.
Industry groups including the American Water Works Association and municipalities will closely consider what may happen should a similar incident happen near them, he wrote. The spill this month left 300,000 people in and around West Virginia’s capital without drinking water for days.
Municipalities are “coming to the realization that Elk River could happen anywhere, and that they themselves wouldn’t have the same level of expertise and resources to deal with something of that scale,” Gaugler said.
American Water, the biggest publicly traded water company in the U.S., will incur water sale of losses of as much as $3 million tied to Elk River and its West Virginia unit, Gaugler estimated. He rates the stock, which has risen 11 percent over the past year, a buy.
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