We recently updated a research report on ONE Gas Inc. (OGS - Free Report) . This 100% regulated natural gas distribution utility is poised to benefit from systematic investments, new rates and steady demand from residential customers.
What’s Driving the Stock?
One Gas has a strong long-term capital expenditure plan, with $2 billion targeted to be spent in the 2018-2022 time period. Owing to consistent investment for strengthening its operations, the rate base of the company is expected to improve on an average of 6.0-6.5% per year between 2017 and 2022.
It has a high percentage of residential customers, which provide stability and strong visibility of future earnings growth. The company has been experiencing a steady increase in customer volume since 2013, increasing 2.4% over the past five years.
ONE Gas is utilizing the new technologies in its services territories, which is resulting in efficiency improvement and control in expenditure. The company expects annual O&M expenses to increase less than 2.5% between 2017 and 2022. This will allow it to keep natural gas rates low, even amid increasing expenses.
The company has been generating strong earnings, courtesy of the above factors. ONE Gas surpassed earnings estimates in three out of the last four quarters, resulting in average positive surprise of 11.36%. The Zacks Consensus Estimate for 2018 and 2019 earnings has moved up 1.5% and 0.6%, respectively, in the past 60 days.
Rising Demand for Gas Pipelines
The U.S. Energy Information Administration (EIA) forecasts that U.S. natural gas production, consumption and exports are expected to grow through 2019. The EIA anticipates average natural gas production to be 83.2 billion cubic feet per day (Bcf/d) in 2018, up 8.5 Bcf/d from the 2017 level.
Undoubtedly, the aforementioned development will create more opportunity for the natural gas pipeline service providers. Companies like Plains All American Pipeline, L.P. (PAA - Free Report) , Enterprise Products Partners LP (EPD - Free Report) and Buckeye Partners L.P. (BPL - Free Report) , among others, are expanding pipeline infrastructure to provide transportation facility for supporting the growing natural gas demand.
Zacks Rank & Other Key Picks
ONE Gas currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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