Atmos Energy (ATO) to Gain From Customer Additions, Investments
Atmos Energy Corp. ATO, a regulated natural gas distribution and storage business, benefits from the expanding customer base, long-term growth plan and strong return on capital.
ATO - which currently has a Zacks Rank #2 (Buy) - is subject to stiff competition in terms of alternative fuel sources and risks related to interest rates and economic conditions.
Tailwinds
Atmos Energy has a well-chalked-out long-term capital expenditure plan. Majority of its capital expenditure is utilized to improve the safety and reliability of distribution and transportation systems. Capital spending amounted to $2.1 billion in the first nine months of fiscal 2023, and the company plans to invest $2.8 billion in the fiscal year. This investment will result in 6-8% annual earnings growth during the period.
The customer additions and favorable rate outcomes benefit the company. In the past year, Atmos Energy added nearly 64,000 new customers to its existing base and during the fiscal third quarter, it had 10 new industrial customers. As a result of the constructive regulatory mechanism, more than 90% of the annual capital investments start providing returns within six months.
Stable performance has allowed its management to declare a regular dividend for shareholders. The company has increased annual dividends for the past 39 consecutive years. With a quarterly dividend of 74 cents per share, the company’s dividend yield stands at 2.54%, better than the Zacks S&P 500 Composite’s 1.65%. ATO continues to enjoy a favorable financial position. As of Jun 30, 2023, the company had $3.1 billion in available liquidity, which was enough to meet its current obligations.
Headwinds
Atmos Energy’s extensive network of transmission and distribution pipelines makes it prone to accidents despite regular investments in maintenance and upgrade. Risks related to rising interest rates, state economic conditions, weather fluctuations and competition from other suppliers of natural gas and alternative fuels are potential headwinds for the company.
Other Stocks to Consider
Some other top-ranked utilities in the same sector are MDU Resources Group, Inc. (MDU), FirstEnergy Corp. (FE) and Entergy Corp. (ETR), each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MDU’s long-term (three- to five-year) earnings growth rate is 5.8%. The stock boasts an average earnings surprise of 14.16% in the last four quarters.
FE’s long-term earnings growth rate is 6.4%. The Zacks Consensus Estimate for 2023 earnings per share (EPS) indicates a year-over-year improvement of 5%.
ETR’s long-term earnings growth rate is 5.7%. The Zacks Consensus Estimate for 2023 EPS indicates a year-over-year improvement of 4.5%.
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