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Atmos Energy (ATO) Benefits From Investment & Debt Management

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·3 min read
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Atmos Energy Corporation ATO has been gaining from planned capital investments to strengthen the distribution and transportation systems. An expanding customer base and efficient debt management are also likely to drive its performance over the long run.

Atmos Energy currently carries a Zacks Rank #3 (Hold) and has delivered an average earnings surprise of 1.1% in the last four quarters. ATO’s long-term (three to five years) earnings growth is currently pegged at 7.3%. Moreover, Atmos Energy’s current dividend yield of 2.3% is better than the Zacks S&P 500 composite average of 1.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tailwinds

Atmos Energy has a sturdy capital expenditure plan and a major portion of the planned expenditure is utilized to improve the safety and reliability of the distribution and transportation systems. ATO invested $2 billion in fiscal 2021 and plans to invest in the range of $2.4-$2.5 billion in fiscal 2022. Atmos Energy also expects to invest in the range of $13-$14 billion from fiscal 2022 to 2026, out of which more than 80% will be allocated to enhance the safety of existing operations.

Atmos Energy is also taking measures to maintain and upgrade the existing infrastructure. ATO aims to replace around 4,000 to 5,000 miles of old transmission and distribution lines and 100,000 to 150,000 steel service lines in the next five years to make its systems more reliable.

Atmos Energy’s total debt to capital at the end of the second quarter of fiscal 2022 was 47%, lower than the industry average of 49.5%. The company has been assigned top-tier credit ratings by rating agencies and as of Mar 31, 2022, Atmos Energy had $3.5 billion in available liquidity, which was enough to meet the current obligations. At the end of the fiscal second quarter of 2022, the times interest earned ratio was 10.5. The strong ratio indicates that the company will be able to meet the current debt obligations without any difficulty.

Headwinds

Atmos Energy operates in a highly competitive gas distribution industry and has to compete with clean alternate fuel suppliers for sales to industrial customers. Despite making investments, the risks of accidents remain in the distribution and transportation of natural gas. Dependence on a single state for the bulk of its revenues exposes ATO to the vagaries of weather and the economic conditions of that state.

Price Performance

In the past six months, shares of Atmos Energy have rallied 23.3% compared with the industry’s 19.8% growth.

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Zacks Investment Research


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Stocks to Consider

Some better-ranked stocks from the same sector, such as DTE Energy DTE, American Electric Power AEP and American Water Works AWK, each carry a Zacks Rank #2 (Buy).

The long-term (three to five years) earnings growth of DTE Energy, American Electric Power and American Water Works is 6.2%, 6% and 8.1%, respectively.

The Zacks Consensus Estimate for 2022 earnings per share of DTE Energy, American Electric Power and American Water Works has moved up 0.8%, 5.7% and 4.9% year over year, respectively.

DTE, AEP and AWK delivered an average earnings surprise of 9%, 2.4% and 5.3%, respectively, in the last four quarters.


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