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National Fuel Gas' (NFG) Cost Control, CAPEX Plans Bode Well

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Zacks Equity Research
·4 min read
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National Fuel Gas Company’s NFG systematic capital plans, efforts to manage costs along with its strong presence in the Appalachian region are likely to enhance its existing operations further. However, dependence on the performance of its subsidiaries to meet debt obligations is a major concern.

We issued an updated research report on this currently Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past six months, shares of the company have gained 10.5%, outperforming the industry's rise of 5%.

Tailwinds

National Fuel Gas Company’s consistent capital investment in strengthening its natural gas and oil operation is aiding its total production. The company invested $719 million in fiscal 2020 and recorded a net production of 241.5 billion cubic feet equivalent, reflecting a 14% year-over-year increase. Also, it plans to invest in the $720-$830 million range during fiscal 2021.

Moreover, National Fuel Gas Company has pumped $1.5 billion since 2010 into its midstream operation to expand and modernize its pipeline infrastructure for gaining access to the Appalachian production. The company has more than $1 billion pipeline projects under development, which on completion, are likely to boost its annual revenues by $150 million. Also, the buyout of Royal Dutch Shell’s RDS.A upstream and midstream Assets in Pennsylvania for $500 million proved accretive to its earnings and production.

National Fuel Gas Company has efficiently managed its operating expenses since fiscal 2015. Finding & Development (F&D) cost per thousand cubic feet (Mcfe) was $1.32 at the end of fiscal 2016, which dropped to 56 cents at fiscal 2019 end. Furthermore, the acquisition of Shell’s assets increased the company’s natural gas reserves by 684 billion cubic feet with F&D cost at less than 40 cents per Mcfe, lower than what the company incurs currently.

Expanding operations of National Fuel Gas Company has enabled it to pay dividends for the past 118 straight years and raise the dividend rate consecutively over the past 50 years. Also, the company has sufficient liquidity to address its near-term debt obligations.

Headwinds

However, National Fuel Gas Company is a holding company with no significant assets other than the stock of its operating subsidiaries. Thus, its performance depends on its units which may not generate sufficient cash flow for making payments of principal or interest on such intercompany loans. Also, its performance can be affected by an intensified competition to natural gas from alternate energy sources. Moreover, its business operations are subject to stringent regulations, which might affect its operational results, financial conditions as well as cash flow.

Other Stocks to Consider

Other top-ranked stocks in the same sector include ONEOK Inc. OKE and CenterPoint Energy, Inc. CNP. While ONEOK sports a Zacks Rank #1, CenterPoint Energy carries a Zacks Rank of 2, presently.

The Zacks Consensus Estimate for ONEOK’s 2021 earnings has been revised 9.4% upward in the past 60 days. The company’s long term (three-five years) growth rate is pegged at 4.62%.

CenterPoint Energy’s long-term earnings rate is pegged at 5%. It delivered a trailing four-quarter earnings surprise of 13.22%, on average.

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ONEOK, Inc. (OKE) : Free Stock Analysis Report
 
CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
National Fuel Gas Company (NFG) : Free Stock Analysis Report
 
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