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On Apr 10, Zacks Investment Research upgraded Chesapeake Utilities Corp. (CPK - Snapshot Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The company has registered earnings surprises in the last three quarters of 2012 with an average beat of 28.7%. In fourth quarter 2012, earnings of $1.02 per share surpassed the Zacks projection of 86 cents by 18.6%.

Chesapeake Utilities continues to make investments to upgrade and maintain its natural gas distribution and transmission systems. Besides organic investments, acquisitions also allow this energy company to expand operations and the customer base. The company has spent $227 million over the last five years and has allocated a further  $112.3 million for 2013.

The long-term plan to expand its intrastate and interstate pipeline systems will allow the company to cater to new markets and further expand its natural gas distribution operations.

We note that the major portion of the company’s capital expenditure is directed towards the regulated energy operations. Operating income from the regulated business was up 7% year over year to $47 million in 2012. We believe investments in regulatory assets will ensure a steady flow of revenue and strengthen its finances.

The present valuation also makes the stock attractive. Shares of Chesapeake Utilities currently trade at 15.33x 12-month forward earnings, a 13.4% discount to the peer group average of 17.71x. Its price-to-book ratio of 1.88 is at a 5.5% discount to the peer group average of 1.99.

The Zacks Consensus Estimate for 2013 of $1.51 per share increased 4.4% in the last 60 days, which reflects year-over-year growth of 9.53%. Over the last 60 days, the Zacks Consensus Estimate for 2014 increased 4.87% to $3.44 per share, reflecting growth of 4.94% year over year.

Other Stocks to Consider

Other than Chesapeake Utilities Corp, a few other gas utilities are also performing well and have a favorable Zacks Rank. We note that the gas utilities are expected to do well going forward as natural gas is increasingly used for power generation. The stocks also worth a look are Atmos Energy Corporation (ATO - Snapshot Report), Questar Corporation (STR - Analyst Report) and Southwest Gas Corporation (SWX - Snapshot Report). All of them presently have a Zacks Rank #2 (Buy).

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