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ATO or NJR: Which Is a Better Utility Gas Distribution Stock?
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Natural gas distribution pipelines play a vital role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small-diameter pipelines. The natural gas network in the United States has nearly 3 million miles of pipeline. Increasing consumption of natural gas in the United States and abroad is driving distribution pipelines’ demand.
The country has witnessed a rise in domestic natural gas production as a result of increased exports and public awareness of lower emissions. The need for additional distribution pipes will increase as demand for natural gas from various consumer segments rises.
Ageing infrastructure and rising investment costs related to the replacement and maintenance of extensive network of pipelines (due to an increase in interest rates) are major concerns for the sector.
Per a U.S. Energy Information Administration (“EIA”) report, natural gas consumption for electricity generation is expected to increase 40% and 38% in 2023 and 2024, respectively. The EIA also expects the second highest U.S. natural gas consumption of electricity generation on record this summer, behind last year, and averaging about 38 billion cubic feet per day (Bcf/d). It forecasts U.S. electric power sector generation from natural gas to be 1,604 billion kilowatthours (kWh) and 1,558 billion kWh in 2023 and 2024, respectively.
In this article, we run a comparative analysis on two Utility - Gas Distribution companies — Atmos Energy Corporation (ATO - Free Report) and NewJersey Resources (NJR - Free Report) — to decide which stock is a better pick for your portfolio now.
The Zacks Consensus Estimate for ATO’s fiscal 2023 earnings is pegged at $6.03 per share on revenues of $5.28 billion. This indicates year-over-year growth of 7.7% in the bottom line and 25.73% in the top line.
The consensus mark for NewJersey Resources’ 2023 earnings stands at $2.64 per share on revenues of $3 billion. This implies year-over-year growth of 5.6% in the bottom line and 3.24% in the top line.
Price Performance
In the past month, Atmos Energy’s shares have risen 2% against the industry's decline of 2.8%. Shares of NJR nosedived 5.8% in the same time frame.
Image Source: Zacks Investment Research
Debt Position
The debt-to-capital ratio is a vital indicator of the financial position of a company. The indicator shows the amount of debt used to run a business. Atmos Energy and NewJersey Resources have a debt-to-capital of 39.11% and 59.85%, respectively, compared with the industry’s 50.71%.
Currently, Atmos Energy’s times interest earned (TIE) ratio is 8.3 and the same for NJR is 4.4. Both the companies have maintained their TIE ratio at more than 1 for over a decade now. This indicates that the companies have enough financial flexibility to meet their near-term debt obligations.
Dividend Yield
Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for Atmos Energy is 2.54%, while the same for NewJersey Resources is 3.2%. The dividend yields of both companies are better than the Zacks S&P 500 Composite’s average of 1.53%.
Outcome
ATO and NJR are evenly matched and good picks for your portfolio. However, our choice at this moment is Atmos Energy, given its better debt position, earnings growth projections and higher price performance than NewJersey Resources.
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ATO or NJR: Which Is a Better Utility Gas Distribution Stock?
Natural gas distribution pipelines play a vital role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small-diameter pipelines. The natural gas network in the United States has nearly 3 million miles of pipeline. Increasing consumption of natural gas in the United States and abroad is driving distribution pipelines’ demand.
The country has witnessed a rise in domestic natural gas production as a result of increased exports and public awareness of lower emissions. The need for additional distribution pipes will increase as demand for natural gas from various consumer segments rises.
Ageing infrastructure and rising investment costs related to the replacement and maintenance of extensive network of pipelines (due to an increase in interest rates) are major concerns for the sector.
Per a U.S. Energy Information Administration (“EIA”) report, natural gas consumption for electricity generation is expected to increase 40% and 38% in 2023 and 2024, respectively. The EIA also expects the second highest U.S. natural gas consumption of electricity generation on record this summer, behind last year, and averaging about 38 billion cubic feet per day (Bcf/d). It forecasts U.S. electric power sector generation from natural gas to be 1,604 billion kilowatthours (kWh) and 1,558 billion kWh in 2023 and 2024, respectively.
In this article, we run a comparative analysis on two Utility - Gas Distribution companies — Atmos Energy Corporation (ATO - Free Report) and NewJersey Resources (NJR - Free Report) — to decide which stock is a better pick for your portfolio now.
Both the stocks carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Projections
The Zacks Consensus Estimate for ATO’s fiscal 2023 earnings is pegged at $6.03 per share on revenues of $5.28 billion. This indicates year-over-year growth of 7.7% in the bottom line and 25.73% in the top line.
The consensus mark for NewJersey Resources’ 2023 earnings stands at $2.64 per share on revenues of $3 billion. This implies year-over-year growth of 5.6% in the bottom line and 3.24% in the top line.
Price Performance
In the past month, Atmos Energy’s shares have risen 2% against the industry's decline of 2.8%. Shares of NJR nosedived 5.8% in the same time frame.
Image Source: Zacks Investment Research
Debt Position
The debt-to-capital ratio is a vital indicator of the financial position of a company. The indicator shows the amount of debt used to run a business. Atmos Energy and NewJersey Resources have a debt-to-capital of 39.11% and 59.85%, respectively, compared with the industry’s 50.71%.
Currently, Atmos Energy’s times interest earned (TIE) ratio is 8.3 and the same for NJR is 4.4. Both the companies have maintained their TIE ratio at more than 1 for over a decade now. This indicates that the companies have enough financial flexibility to meet their near-term debt obligations.
Dividend Yield
Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for Atmos Energy is 2.54%, while the same for NewJersey Resources is 3.2%. The dividend yields of both companies are better than the Zacks S&P 500 Composite’s average of 1.53%.
Outcome
ATO and NJR are evenly matched and good picks for your portfolio. However, our choice at this moment is Atmos Energy, given its better debt position, earnings growth projections and higher price performance than NewJersey Resources.