Atmos Energy Plans to Pass Along $100 Million in Savings to Customers
- By Yamil Berard
Atmos Energy Corp. (ATO), which provides natural gas services to over 3 million customers in the U.S., finished off the final months of the year with optimism, fueled by growth in consumption and its customer base.
The company drew in a net 32,000 more customers for the three months ended Dec. 31, and saw fat profits from rising usage in southern states hit by unusually cold temps.
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The intrinsic value of ATO
That combination of factors, at least in part, drove earnings to $1.40 per share, exceeding Wall Street forecasts of $1.14 per share. The earnings were based on $152.2 million net income from continuing operations for the quarter and reflected a one-time tax benefit of $161.9 million under the U.S. Tax Cuts and Jobs Act.
In many ways, the Dallas-based company is also hoping benefits from tax reform will offset any adverse reaction to rising interest rates.
Conventional wisdom says utility stocks are hit hardest when interest rates begin to climb because borrowing costs to maintain infrastructure go up, and because investors will be lured to higher yields in the bond market.
But at least on Wednesday, investors appeared mostly pleased with the company's results. Almost 70% of Atmos shareholders are institutional investors.
In afternoon trading on Wednesday, Atmos shares were up 0.56%. Shares had been up over 1% to just under $79 a share shortly after a morning call to report earnings to financial analysts. The stock is up 5% compared to a year ago.
The company's gross profits increased by $37.7 million to $397 million for the three months ended Dec. 31. That compared with $359.3 million in the prior-year period, according to the company's earnings.
The difference included a net $5.7 million profit as a result of weather that was 20% colder than the prior-year quarter. The Dallas-Fort Worth Area experienced its coldest day in 22 years on Jan. 16, Atmos officials said.
Company segments and growth
Capital expenditures increased $85.2 million to $383.2 million for the quarter, compared with $298 million for the prior-year quarter, as part of an effort to replace and enhance infrastructure.
The company is working to modernize its distribution and transmission systems.
In 2018, capital expenditures are expected to remain in the previously announced range of $1.3 billion to $1.4 billion.
Atmos operates three segments. The Regulated Distribute Segment has millions of residential, commercial and industrial customers. The Regulated Pipeline segment engages in the pipeline and storage operations. It transports natural gas for third parties and manages five underground storage reservoirs in Texas. Lastly, the Non-regulated segment provides natural gas management, marketing, transportation and storage services to municipalities, local gas distribution companies and industrial customers in the Midwest and Southeast.
Chris Forsythe, the company's senior vice president and chief financial officer, said the company is expecting to deliver earnings growth in the 6% to 8% range.
The 2018 earnings guidance was increased to $3.85 to $4.05 per share from $3.75 to $3.95 per share.
Lowering rates for customers and dividends
Customers are likely to save more than $100 million in annual savings as a result of the U.S. Tax Cuts and Jobs Act.
Atmos said it had realized a one-time $161.9 million non-cash benefit from the tax reform bill. The benefit resulted in a reduction of net deferred tax liabilities, which were not included in the determination of cost of service rates.
The company's board of directors declared a quarterly dividend of 48.5 cents per common share, a 7% jump over fiscal 2017.
GuruFocus indicators
Atmos has a market cap of $12.3 billion. Its financial strength is rated 4 in 10 and its profitability and growth is rated 5 of 10, according to GuruFocus indicators.
It has a price-earnings (P/E) ratio of 21.19 versus an industry median of 17.13. Its price-book (P/B) ratio is 2.14 versus an industry median of 1.61. Its price-sales ratio (P/S) is 3.04 versus the median of 1.68.
Its cash-debt ratio is 0.01 versus a median of 0.26. Its equity to asset ratio is 0.36, the industry median.
Its debt to equity is 0.90 versus an industry median of 0.95.
Its debt to EBITDA is 3.37, which is lower than the industry median of 3.62.
The Peter Lynch chart below suggests the stock is overvalued at over $78 a share. The median price is $54 a share.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 2 Warning Sign with ATO. Click here to check it out.
The intrinsic value of ATO
