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4 Reasons to Add Atmos Energy (ATO) to Your Portfolio Now

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Atmos Energy Corporation (ATO - Free Report) along with its subsidiaries is engaged in regulated natural gas distribution and storage business. Solid contribution from residential customers, returns within one year of investment and customer additions will continue to boost the company’s performance.

Let’s focus on the factors that make this Zacks Rank #2 (Buy) stock a strong investment pick at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Regular Investments

Atmos Energy makes consistent investments to upgrade and maintain the existing infrastructure as well as expand operations. The company invested nearly $2 billion in fiscal 2020 and anticipates investing in the range of $2-$2.2 billion in fiscal 2021. It invested $1.4 billion in the first nine months of fiscal 2021, with 87% directed toward safety and reliability spending to modernize its systems.

Atmos Energy is planning to invest in the range of $11-$12 billion from fiscal 2021 through 2025, out of which 80% will be allocated to enhance the safety of existing operations. The planned investment will result in 6-8% annual earnings growth over the same time frame.

Surprise History, Dividend Yield & Long-Term Earnings Growth

Atmos Energy has an impressive earnings surprise history. Its trailing four-quarter earnings surprise is 6.9%, on average.

Currently, Atmos Energy has a dividend yield of 2.5%, higher than the Zacks S&P 500 composite’s average of 1.36%. The company’s board of directors raised annual dividend by 8.7% in fiscal 2021, which marks the 37th consecutive year of dividend increase. Atmos Energy targets annual dividend growth in the range of 6-8% and long-term payout ratio of 50%.

The company’s long-term (three to five years) earnings growth is currently pegged at 7.4%.

Growth Projections

The Zacks Consensus Estimate for fiscal 2021 and 2022 earnings per share is pegged at $5.09 and $5.43, respectively. Fiscal 2021 and 2022 estimates indicate year-over-year growth of 7.8% and 6.6%, respectively.

The Zacks Consensus Estimate for fiscal 2021 and 2022 revenues is pegged at $3.5 billion and $4 billion, indicating year-over-year growth of 22.9% and 14.7%, respectively.

Strong Credit Rating and Ample Liquidity

Atmos Energy has been assigned top-tier credit ratings by rating agencies. The strong ratings will allow the company to get quicker approval for loans. As of Jun 30, 2021, it had $3.2 billion available liquidity, which was enough to meet the current obligations. At fiscal third quarter-end, the company’s times interest earned ratio was 11, which improved 120 basis points from 9.8 at fourth-quarter fiscal 2020-end.

Courtesy of efficient management of the outstanding long-term debt, Atmos Energy was able to lower the average cost of long-term debt. Net interest charges for its debts are expected to drop to 3% in fiscal 2021 from 5.2% in fiscal 2017, which will definitely have a positive impact on margins.

Price Performance

In the past six months, the stock has gained 10.7% compared with the industry’s rally of 7.2%.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Stocks to Consider

Other top-ranked stocks in the same sector include American States Water Company (AWR - Free Report) , California Water Service Group (CWT - Free Report) and Middlesex Water Company (MSEX - Free Report) , currently having a Zacks Rank #2 (Buy).

American States Water, California Water Service and Middlesex Water Company pay regular dividends, thereby ensuring steady income for investors. The current dividend yield of American States Water, California Water Service and Middlesex Water Company is 1.6%, 1.1% and 1.5%, respectively.

The Zacks Consensus Estimate for 2021 earnings for American States Water, California Water Service and Middlesex Water Company has moved up 0.4%, 3.7% and 2.9%, respectively, in the past 30 days.