The Utility sector is one of the most stable sectors for investment, as it deals with the basic services and is not affected by the vagaries of the economy. The demand for natural gas is rising in the United States due to its clean burning nature and increasing investments are being made to strengthen the natural gas distribution infrastructure.
The Zacks Utility Gas Distribution industry comprises companies that offer services to transport natural gas from the source of production to end users. Gas distribution pipelines are crucial as consumption areas and storage facilities are often far from the production sites. Notably, the natural gas network in the United States has nearly 3 million miles of pipeline.
In this write up, we run a comparative analysis on two natural gas distribution utilities — ONE Gas, Inc. (OGS - Free Report) and Chesapeake Utilities Corporation (CPK - Free Report) — to ascertain which one is a better investment option right now. Steady performance and cash flow enable these companies to reward their investors through regular dividends.
ONE Gas, currently carrying a Zacks Rank #3 (Hold), has a market capitalization of nearly $4.7 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chesapeake Utilities Corporation, also carrying a Zacks Rank #3, has a market capitalization of $1.51 billion.
In the past 12 months, shares of ONE Gas have gained 37.5%, while Chesapeake Utilities’ shares have rallied 30.7%. The industry recorded 16% growth over the same period.
Price Performance (One Year)
Long-Term Earnings Growth & Surprise Trend
ONE Gas’s long-term (three to five years) earnings growth rate is projected at 5.9%. The same for Chesapeake Utilities is pegged at 6%.
ONE Gas outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with average positive earnings surprise of 11.91%. Chesapeake Utilities lagged the Zacks Consensus Estimate in three out of the trailing four quarters, with average negative earnings surprise of 9.14%.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing its shareholder’s funds. ROE for ONE Gas and Chesapeake Utilities stands at 8.5% and 10.67%, respectively. Notably, Chesapeake Utilities outperformed the industry’s ROE of 9.36%.
The debt-to-capital ratio is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. ONE Gas has a debt-to-capital ratio of 38.63% compared with the industry’s 48.08%. Meanwhile, Chesapeake Utilities had a debt-to-capital ratio of 37.87% at the end of 2018.
Utility companies generally distribute dividends. Currently, the dividend yield for ONE Gas is 2.24%, better than 1.61% for Chesapeake Utilities. Chesapeake Utilities’ dividend yield is also lower than the S&P 500 Index’s average of 1.99%.
Earnings Estimate Revision
The Zacks Consensus Estimate for 2019 and 2020 earnings for ONE Gas is pegged at $3.43 and $3.57, reflecting growth of 0.9% and 0.6%, respectively, in the past 90 days. The Zacks Consensus Estimate for 2019 earnings for Chesapeake Utilities is pegged at $3.67, remaining unchanged over the past 90 days, while its 2020 estimates were downwardly revised by 0.8% to $3.91 per share in the said period.
Our comparative analysis shows that these companies are evenly matched in most of the metrics. However, ONE Gas’ earnings surprise history and positive earnings revision tilt the balance in its favor. Hence, ONE Gas is a better utility stock to add to your portfolio at the moment.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>