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ONE Gas (OGS) Down 3.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for ONE Gas (OGS). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ONE Gas due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ONE Gas Q3 Earnings Miss Estimates, Revenues Rise Y/Y

ONE Gas reported third-quarter 2019 earnings of 33 cents per share, which lagged the Zacks Consensus Estimate of 34 cents by 2.94%.

Nevertheless, the figure rose 6.45% from the year-ago quarter’s level driven by new rates and residential customer growth.

Total Revenues

The company recorded total revenues of $249 million in the third quarter, which missed the Zacks Consensus Estimate of $254 million by nearly 1.97%.

However, revenues improved 4.62% from the year-ago quarter’s level.  The upside can be attributed to higher natural gas sales volumes and natural gas transportation volumes.

Quarterly Highlights

Total operating expenses in the reported quarter increased 6.2% from the year-ago quarter’s figure to $160.2 million.

Operating income in the reported quarter increased 7.2% year over year to $38.8 million.

The company incurred interest expenses of $15.8 million, up 27.6% from the prior-year quarter’s figure. Increase in expenses was caused by refinancing of the company's senior notes.

Financial Highlights

At the end of third quarter, ONE Gas had cash and cash equivalents of $12.6 million compared with $21.3 million at 2018-end.

Long-term debt (excluding current maturities) was $1,285.9 million as of Sep 30  2019, up from Dec 31, 2018 level of $1,285.5 million.

The company’s cash flow from operating activities in the first nine months of 2019 was $288.5 million compared with $436.8 million in the year-ago period.

Guidance

ONE Gas has maintained its guidance declared on Jul 29, 2019 with net income projected in the range of $180-$190 million. The earnings per share (EPS) guidance is in the range of $3.39-$3.57. The midpoint of management’s 2019 EPS guidance is $3.48, lower than the current Zacks Consensus Estimate of $3.5 for the period.

The company has set its capital expenditures guidance, including asset removal costs, at nearly $450 million in 2019. Out of this, 70% of these expenditures will be directed toward system integrity and replacement projects.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months.

VGM Scores

At this time, ONE Gas has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

ONE Gas has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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