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NJR or UGI: Which Utility Gas Distribution Stock to Buy Now?

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Natural gas has become a preferred choice of fuel in the United States due to its clean-burning nature but it is facing competition from other clean sources like renewable energy. Wider usage of natural gas in electric power, industrial, commercial and residential markets increases the demand for natural gas distribution network.

Gas pipelines play a crucial role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small diameter distribution pipelines.

Notably, the natural gas network in the United States has nearly 3 million miles of pipeline that ensure supply to millions of households. Increasing consumption of natural gas in the United States and internationally is driving demand for distribution pipelines.

Despite an expected decline in demand for natural gas in 2021 per the latest report by the U.S. Energy Information Administration, we expect the benefits of natural gas to continue driving the distribution industry.

In this article, we run a comparative analysis on two Utility - Gas Distribution companies — New Jersey Resources Corporation NJR and UGI Corporation UGI — to decide which stock is a better pick for your portfolio now.

Both the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

New Jersey Resources has a market capitalization of $4.1 billion, while UGI Corp. has $9.1 billion. Both the companies currently have a VGM Score of B.

Growth Projections

The Zacks Consensus Estimate for New Jersey Resources’ fiscal 2021 earnings and revenues is pegged at $2.02 and $1.9 billion, respectively. The bottom-line estimate has increased 16.8% in the past 60 days.

The Zacks Consensus Estimate for UGI Corp.’s fiscal 2021 earnings is pegged at $3.03 per share. The bottom-line estimate has increased 4.5% in the past 60 days.

Price Performance

In the past year, UGI Corp.’s shares have gained 40.3% compared with the industry's rally of 16.2%. Shares of New Jersey Resources have gained 25.5% in the same time frame.


Debt to Capital

Debt to capital is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. New Jersey Resources and UGI Corp. have a debt-to-capital of 55.8% and 56.8%, respectively, compared with the industry’s 53.2%.

Dividend Yield & Long-Term Earnings Growth

Utility companies generally distribute dividends. Currently, the dividend yield for New Jersey Resources is pegged at 3.12%, while the same for UGI Corp. is 3.01%. Both the companies’ dividend yield is better than the industry’s average of 2.79%.

New Jersey Resources’ long-term (three to five years) earnings growth is currently pegged at 7.1%. UGI Corp.’s long-term earnings growth is projected at 8%.

Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12 months for New Jersey Resources and UGI Corp. is 14.72% and 14.86%, respectively. National Fuel Gas has outperformed the industry’s ROE of 12.67%.

Outcome

Although both the companies are efficiently providing services to customers, UGI Corp. is a better pick for your portfolio as of now.

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UGI Corporation (UGI) : Free Stock Analysis Report

NewJersey Resources Corporation (NJR) : Free Stock Analysis Report

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