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CPK or NJR: Which is a Better Utility Gas Distribution Stock?

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The shale revolution has substantially increased the production of natural gas, which has become the preferred choice of fuel in the United States. Its wide availability and a clean-burning nature are steadily boosting demand for natural gas in the electric power, industrial, commercial and residential markets but it faces competition from other clean sources like renewable energy.

Gas distribution pipelines play a vital role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small-diameter pipelines. Currently, the United States has nearly three million miles of natural gas pipelines that ensure a steady supply to millions of customers.

Demand from rising natural gas customer volume and the usage of natural gas to produce electricity will play a pivotal role in utilities’ gradual transition to clean energy.

Per the latest short-term energy outlook released by the U.S. Energy Information Administration (“EIA”), dry natural gas production is projected to be 99 billion cubic feet per day (Bcf/d) in the United States in the fourth quarter of 2022. The same is expected to increase to 100.4 Bcf/d by 2023.

The EIA expects U.S. natural gas consumption to rise 4.3% in 2022 to 86.6 Bcf/d, driven by increases across all consuming sectors. In 2023, consumption is expected to drop 1.9 Bcf/d due to declines in consumption in the industrial and electric power sectors.

Furthermore, the EIA expects U.S. liquefied natural gas (LNG) export volumes to increase to 11.7 billion cubic feet per day Bcf/d in the fourth quarter of 2022, up 1.7 Bcf/d sequentially. Also, the EIA forecasts total U.S. LNG exports to reach 12.3 Bcf/d for 2023. The higher production and export volumes will increase the usage and demand for natural gas pipelines in the United States.

In this article, we run a comparative analysis on two Utility - Gas Distribution companies — Chesapeake Utilities Corporation (CPK - Free Report) and New Jersey Resources Corporation (NJR - Free Report) — to decide which stock is a better pick for your portfolio now.

Both the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Projection & Earnings Surprise

The Zacks Consensus Estimate for Chesapeake Utilities’ 2022 earnings is pegged at $5.04 on revenues of $0.7 billion. The bottom line suggests an increase of 6.6% from 2021’s reported figure.

The Zacks Consensus Estimate for New Jersey Resources’ fiscal 2022 earnings is pegged at $2.46 on revenues of $2.7 billion. The bottom line suggests an increase of 13.9% from 2021’s reported figure.

Chesapeake Utilities delivered an average earnings surprise of 10.08% in the last four quarters, while New Jersey Resources delivered a negative average earnings surprise of 34.62% in the last four quarters.

Price Performance

In the past three months, CPK shares have rallied 6.4% compared with the industry's growth of 4.3%. Shares of NJR have rallied 1%, underperforming the industry’s growth in the same period.

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Image Source: Zacks Investment Research

Debt to Capital

Debt to capital is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. Chesapeake Utilities and New Jersey Resources have a debt-to-capital of 47.7% and 62.3%, respectively, compared with the industry’s 49%.

Return on Equity

Return on Equity (ROE) is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for Chesapeake Utilities and New Jersey Resources is 11.2% and 11.5%, respectively. Both stocks have outperformed the industry’s ROE of 10.7%.

Dividend Yield

Utility companies generally distribute dividends. Currently, the dividend yield for Chesapeake Utilities is 1.7%, while New Jersey Resources’ dividend yield is 3.3% compared with the Zacks S&P 500 composite’s average of 1.8%.

Outcome

Although both the companies are efficiently providing services to customers, Chesapeake Utilities, with its positive earnings surprise, efficient debt management and superior return over the past three months, is a better stock to add to your portfolio.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Chesapeake Utilities Corporation (CPK) - free report >>

NewJersey Resources Corporation (NJR) - free report >>

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