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Residential User Contribution & Investment Aid Atmos Energy

Zacks Equity Research
·3 mins read

Atmos Energy Corporation ATO and its subsidiaries are engaged in regulated natural gas distribution, and storage businesses. Solid contribution from residential customers and return within 12 months of investment will continue to boost the company’s performance.

We updated a research report on this Zacks Rank#3 (Hold) stock. Dependence on a single state for bulk of its revenues exposes it to the vagaries of weather and economic conditions of that state.

Tailwinds

Atmos Energy has a solid capital expenditure plan, which will help the company to increase the safety and reliability of natural gas pipelines. The company is planning to invest in the range of $10-$11 billion from fiscal 2020 through 2024, out of which 85% will be allocated to enhance the safety of the existing operations. The planned investment will result in 6-8% annual earnings growth over the same time frame.

More than 90% of Atmos Energy’s annual capital investments start earning returns within six months and nearly 99% in no more than 12 months. Customers and investors gain from the constructive rate outcomes. Owing to positive regulatory outcome, operating income of Atmos Energy in the first nine months of fiscal 2020 improved $110.8 million from the year-ago period.

At present, nearly 57% of its revenues are generated from the residential customer group. The stay-at-home orders to control the spread of the novel coronavirus are expected to increase residential demand for gas, which in turn is likely to partly offset the decline in demand from other customer categories.

Headwinds

Nearly 70% consolidated operations of Atmos Energy are located in the State of Texas. More than 50% of the company’s distribution customers and most of its pipeline and storage assets, as well as operations are located in the State of Texas. The company’s operations and financial results are vulnerable to the state’s economic conditions, weather patterns and regulatory decisions.

Price Performance

In the past three months, Atmos Energy’s shares have lost 4.1%, narrower than the industry’s 8.8% decline.

Stocks to Consider

Some better-ranked stocks in the same sector include UGI Corporation UGI, Essential Utilities Inc. WTRG and American States Water Company AWR, each currently having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UGI Corp. delivered an earnings surprise of 153.3% in the last reported quarter. The Zacks Consensus Estimate for fiscal 2020 earnings has moved 12.9% upward to $2.54 in the past 60 days.

Essential Utilities’ long-term (three to five years) earnings growth rate is pegged at 6.01%. Also, the company has a trailing four-quarter earnings surprise of 9.7%, on average.

The company’s long-term (three to five years) earnings growth is currently pegged at 4.9%. The Zacks Consensus Estimate for its 2020 earnings has moved 0.9% upward in the past 60 days.

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