National Fuel Gas Company’s NFG decision to acquire Royal Dutch Shell’s RDS.A assets in Pennsylvania, strong presence in the Appalachian region, and expanding upstream and midstream operations make it a good stock to retain in your portfolio amid the ongoing choppiness in the market resulting from the novel coronavirus outbreak.
Courtesy of cost-management initiatives, National Fuel Gas’ operating expenses have been declining since fiscal 2015. Finding & Development cost per thousand cubic feet was $1.32 at the end of fiscal 2016, which dropped to 56 cents at fiscal 2019-end.
Its acquisition of Royal Dutch Shell’s upstream and midstream assets in Pennsylvania for $500 million will be immediately accretive to earnings and production, post closure of the buyout. The company now expects total production for fiscal 2020 in the range of 245-255 billions of cubic feet equivalent (Bcfe), up from the previous guided range of 235-245 Bcfe, taking into consideration the contribution from the acquired Shell’s assets.
It has more than $1 billion pipeline projects under development. These projects, on completion, are expected to boost annual revenues by $150 million. In addition, National Fuel Gas continues to replace and modernize the existing old pipelines, and has invested more than $1.5 billion in midstream operations since 2010.
The company exited second-quarter fiscal 2020 with a total liquidity of $832 million, which is sufficient to address near-term debt obligations. National Fuel Gas does not have any debt maturity in the 2020-2021 time period, with $500 million due in 2022.
Factors Acting as Headwinds
Fluctuation in natural gas prices could have an adverse impact on its overall performance. Due to the same, National Fuel Gas decided to reduce development activity in the Appalachia region and drop one of the three horizontal drilling rigs currently operating in the region.
Variation in weather conditions can impact the volume of natural gas delivered by the Utility segment, as the majority of residential and commercial customers use natural gas for space heating. During the fiscal second quarter, warm weather in its service territories had an adverse impact on demand for natural gas and margins.
National Fuel Gas’ shares have outperformed the industry in the past three months.
Zacks Rank and Key Picks
National Fuel Gas currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same industry include Atmos Energy Corporation ATO and Southwest Gas Corporation SWX, each holding a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term (three to five years) earnings growth for Atmos Energy and Southwest Gas is projected at 7.2% and 6%, respectively.
The Zacks Consensus Estimate for Atmos Energy’s fiscal 2020 earnings has moved 0.2% upward in the past 60 days. The Zacks Consensus Estimate for Southwest Gas’ bottom line for the current year has improved 0.8% in the past 90 days.
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Southwest Gas Corporation (SWX) : Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
National Fuel Gas Company (NFG) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
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