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Atmos (ATO) to Gain From Investments, Gas Leakages a Concern

·4 min read

Atmos Energy Corporation ATO, along with its subsidiaries, is engaged in regulated natural gas distribution and storage business.

This Zacks Rank #3(Hold) stock delivered an earnings surprise of 6.58%, on average, in the last four quarters. The long-term earnings growth (three to five years) is currently pegged at 7.34%. The Zacks Consensus Estimate for 2021 earnings has moved up 0.19% in the past 60 days to $5.05 per share

Tailwinds

Atmos Energy has a solid capital expenditure plan in place, helping the company to increase safety and reliability of its natural gas pipelines. The company will invest in the range of $2-$2.2 billion in fiscal 2021. For fiscal 2021-2025, the company’s investment plan ranges from $11-$12 billion. The company aims at lowering methane emissions by 50% within 2035. It is carrying out investments for improving the quality of services.

Nearly 90% of Atmos Energy’s annual capital investments start earning returns within six months and nearly 99% in no more than 12 months. Customers and investors gain from the constructive rate outcomes. For fiscal 2021, the company has already received approval for $109.8-million rate hike and $144.5 million rate cases are still in progress. The rate hikes will further boost its operating income in fiscal 2021.

Atmos Energy has been assigned top-tier credit ratings by rating agencies and has liquidity enough to meet the current obligations. Courtesy of efficient management of the outstanding long-term debt, the company was able to lower the average cost of long-term debt. Net interest charges for its debts are expected to fall to 4% in fiscal 2021 from 5.2% in fiscal 2017, which will have a positive impact on margins.

Headwinds

Atmos Energy utilizes capital to upgrade and maintain infrastructure. In spite of the safety initiatives, gas leakage is a concern. Atmos Energy’s operations could be negatively impacted by gas leakages, which in turn might affect the profitability from its operations.

Concentration of operation in Texas exposes it to economic conditions, weather patterns and regulatory decisions of a single state. Dependence on a single state could adversely impact performance if the economic condition of the state remains weak.

Price Performance

In the past three months, shares of Atmos Energy have gained 7.8%, on par with the industry’s rally.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the same industry are NewJersey Resources Corporation NJR, UGI Corporation UGI and ENN Energy Holdings Ltd. XNGSY. All stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The dividend yield for NewJersey Resources, UGI and ENN Energy is 3.01%, 2.8% and 1.37%, respectively.

The Zacks Consensus Estimate for fiscal 2021 earnings for NewJersey Resources & UGI moved up 19.6% and 3.4%, respectively, in the past 60 days. In the same time frame, 2021 earnings estimates for ENN Energy Holdings have moved 4.8% upward.

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You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

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