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ONE Gas: Strong Buy on Estimate Revisions, Customer Gain
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On Dec 27, Zacks Investment Research upgraded ONE Gas Inc. (OGS - Free Report) to a Zacks Rank #1 (Strong Buy).
What Drove the Upgrade?
ONE Gas has been witnessing solid estimate revisions on the back of a strong performance. This natural gas distribution company reported a positive earnings surprise in all of the last four quarters, bringing the average positive surprise to 12.5%. The company’s long-term earnings growth is pegged at 5.9%.
The company’s systematic investments in strengthening its operation and infrastructure have provided consistent tailwinds. Capital expenditure in the first nine months of 2016 period was $231.3 million, compared with $199.7 million a year ago. Expenses increased primarily due to higher system integrity activities and extension of service to new areas.
ONE Gas is a 100% rate-regulated natural gas utility, serving over 2.1 million customers in the states of Oklahoma, Kansas and Texas. Rate hike approvals will enable the company to charge higher rates for gas in these states. The average customer count has increased since 2011 and the company expects its 2016 customer base to expand 0.25% to 0.75% from the 2015 levels.
Meanwhile, the company expects average annual net income growth of 5–8% between 2015 and 2020. The expected bottom-line improvement will be driven by customer growth and consistent investments in bolstering existing operations.
The current debt-to-capital ratio of the company is 39.1%, lower than the industry average of 45.3%. ONE Gas has strong investment grade credit ratings. In addition, ONE Gas’ current ratio of 1.46 makes it an all-season utility, with the ability to cope with a rate hike. Its strong liquidity position will support future capital expenditure and working capital requirements.
The Zacks Consensus Estimate for 2016 moved up 0.8% to $2.63 over the last 90 days. During the same time frame, the Zacks Consensus Estimate for 2017 improved 0.7% to $2.79.
Price Movement
Over the last one year, ONE Gas has outperformed the Zacks categorized Utility–Water Supply industry. During this period, the company’s shares have gained 25.5%, compared with the industry’s return of 24.5%. ONE Gas has a high percentage (92%) of residential customers (excluding transportation) in its portfolio, which offers higher bottom-line stability. We expect the expanding customer count and ongoing investments to drive the company’s performance, going forward.
Another operator in the same space is ONEOK Inc. (OKE - Free Report) , which has returned 143.3% in the past one year, outperforming the industry’s return significantly.
Other Key Picks in the Sector
A couple of other favorably placed stocks in the same space are MDU Resources Group, Inc. (MDU - Free Report) and Vectren Corporation .
MDU Resources currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Its earnings surpassed the Zacks Consensus Estimate by 4.7% in the last reported quarter. For 2016, estimates improved 0.9% to $1.15 in the last 60 days.
Vectren Corporation, another Zacks Rank #2 stock, surpassed the Zacks Consensus Estimate by 15.6% in the last reported quarter. Its 2016 estimates improved 0.8% to $2.50 in the last 60 days.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
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ONE Gas: Strong Buy on Estimate Revisions, Customer Gain
On Dec 27, Zacks Investment Research upgraded ONE Gas Inc. (OGS - Free Report) to a Zacks Rank #1 (Strong Buy).
What Drove the Upgrade?
ONE Gas has been witnessing solid estimate revisions on the back of a strong performance. This natural gas distribution company reported a positive earnings surprise in all of the last four quarters, bringing the average positive surprise to 12.5%. The company’s long-term earnings growth is pegged at 5.9%.
The company’s systematic investments in strengthening its operation and infrastructure have provided consistent tailwinds. Capital expenditure in the first nine months of 2016 period was $231.3 million, compared with $199.7 million a year ago. Expenses increased primarily due to higher system integrity activities and extension of service to new areas.
ONE Gas is a 100% rate-regulated natural gas utility, serving over 2.1 million customers in the states of Oklahoma, Kansas and Texas. Rate hike approvals will enable the company to charge higher rates for gas in these states. The average customer count has increased since 2011 and the company expects its 2016 customer base to expand 0.25% to 0.75% from the 2015 levels.
Meanwhile, the company expects average annual net income growth of 5–8% between 2015 and 2020. The expected bottom-line improvement will be driven by customer growth and consistent investments in bolstering existing operations.
The current debt-to-capital ratio of the company is 39.1%, lower than the industry average of 45.3%. ONE Gas has strong investment grade credit ratings. In addition, ONE Gas’ current ratio of 1.46 makes it an all-season utility, with the ability to cope with a rate hike. Its strong liquidity position will support future capital expenditure and working capital requirements.
The Zacks Consensus Estimate for 2016 moved up 0.8% to $2.63 over the last 90 days. During the same time frame, the Zacks Consensus Estimate for 2017 improved 0.7% to $2.79.
Price Movement
Over the last one year, ONE Gas has outperformed the Zacks categorized Utility–Water Supply industry. During this period, the company’s shares have gained 25.5%, compared with the industry’s return of 24.5%. ONE Gas has a high percentage (92%) of residential customers (excluding transportation) in its portfolio, which offers higher bottom-line stability. We expect the expanding customer count and ongoing investments to drive the company’s performance, going forward.
Another operator in the same space is ONEOK Inc. (OKE - Free Report) , which has returned 143.3% in the past one year, outperforming the industry’s return significantly.
Other Key Picks in the Sector
A couple of other favorably placed stocks in the same space are MDU Resources Group, Inc. (MDU - Free Report) and Vectren Corporation .
MDU Resources currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Its earnings surpassed the Zacks Consensus Estimate by 4.7% in the last reported quarter. For 2016, estimates improved 0.9% to $1.15 in the last 60 days.
Vectren Corporation, another Zacks Rank #2 stock, surpassed the Zacks Consensus Estimate by 15.6% in the last reported quarter. Its 2016 estimates improved 0.8% to $2.50 in the last 60 days.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>