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Investment Update: SJW Group (SJW) Unit Files for Rate Hike, Focuses on Infrastructure Upgrade SJW Group Focuses on Future with Rate Hike Application and Infrastructure Upgrade

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SJW Group has taken a proactive step towards securing a resilient water system for San Jose Water’s customers and local communities. The subsidiary recently filed an application with the California Public Utilities Commission for new rates spanning 2025-2027. The proposed 3-year, $540-million capital investment program is geared towards ensuring a robust water infrastructure in the face of aging systems.

San Jose Water’s commitment to investing in its infrastructure is evident, having poured over $1.6 billion since 2005 toward upgrading its water system. This move underscores the company’s dedication to delivering high-quality, reliable water service to its customers. The pressing need for these investments is justified as a significant portion of the country’s water and wastewater infrastructure reaches the end of its effective service life.

While customers may not immediately welcome the news of a rate hike, such measures are crucial in order to secure funds needed to upgrade the aging infrastructure. The water utility sector has seen a growing trend in companies filing rate case applications to recoup investments and carry out essential infrastructure upgrade work. Companies such as American Water Works and Essential Utilities have similarly prioritized bolstering their infrastructure with well-laid capital investment plans.

Investment in Aging Infrastructure & Rate Hike

The pressing need for infrastructure expenditure is underscored by the U.S. Environmental Protection Agency, which estimates that a cumulative investment of $473 billion and $271 billion is necessary to maintain and expand drinking water and wastewater pipelines, respectively, over the next 20 years. This financial commitment is essential to meeting growing demand and ensuring uninterrupted services for customers.

Maintenance and upgrade of vital water infrastructure such as water mains, storage tanks, and purifying units, as well as other facilities like treatment plants and water reservoirs, are essential for sustaining round-the-clock services for customers.

Companies such as American Water Works and Essential Utilities are dedicated to their infrastructure modernization. American Water Works has set an investment target of $16-$17 billion for the 2024-2028 period, while Essential Utilities plans a significant investment of $1.1 billion in 2023 and $3.3 billion through 2025. The importance of receiving rate hikes for these companies cannot be overstated, as it aids in recouping expenses and provides funding for future capital projects.

Price Performance

Over the past three months, SJW Group’s stock has registered a 3.6% gain, albeit lagging behind the industry’s growth of 9.4%. This uptick in stock performance can be attributed to the company’s strategic approach to infrastructure upgrades and rate hike application, signaling investor confidence in its future prospects.

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Zacks Rank & Another Stock to Consider

With a Zacks Rank #2 (Buy), SJW is well-positioned for potential growth. Another industry player worth considering is Consolidated Water, which currently holds a Zacks Rank #1 (Strong Buy), signifying an optimistic outlook for investors. The company’s long-term earnings growth rate, pegged at 8%, along with a positive Zacks Consensus Estimate for 2024 earnings, reflects a favorable trajectory for potential investors.

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Free Stock Analysis Report for American Water Works Company, Inc. (AWK)

Free Stock Analysis Report for Consolidated Water Co. Ltd. (CWCO)

Free Stock Analysis Report for SJW Group (SJW)

Free Stock Analysis Report for Essential Utilities Inc. (WTRG)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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