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NFG or OGS: Which Is a Better Utility-Gas Distribution Stock?

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Demand for Gas Distribution services is growing in the United States, courtesy of higher consumption of clean-burning natural gas.Increasing shale production and the awareness to lower emission have boosted natural gas production.The Zacks Utility - Gas Distribution industry comprises firms that offer services to transport natural gas from the region of production to end users.

Per the U.S. Energy Information Administration (EIA) forecasts that U.S. dry natural gas production will average 90.6 billion cubic feet per day (Bcf/d) in 2019, up 7.2 Bcf/d from 2018. EIA expects natural gas production to grow consistently in 2020, with an average of 91.8 Bcf/d in the next year.

Pipelines are very important part of gas distribution and transmission systems. The improvement in natural gas production will boost the expansion of natural gas pipelines. Notably, the natural gas network in the United States has pipeline of nearly 3 million miles. With increase in gas production, the necessity of additions and improvement of infrastructure will provide ample growth opportunities to U.S. pipeline operators.

In this article, we will focus on two Zacks Utility - Gas Distribution industrystocks — National Fuel Gas Company (NFG - Free Report) and ONE Gas, Inc. (OGS - Free Report) — to ascertain a profitable pick.

National Fuel Gas currently carries a Zacks Rank #2 (Buy) and has a market capitalization of $4.57 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ONE Gas currently carries a Zacks Rank #2 and has a market capitalization of $4.68 billion.

Price Performance

In the past 12 months, shares of ONE Gas have rallied 28.6%, while that of National Fuel Gas have inched up 0.8%. The industry recorded cumulative increase of 8.3% over the same period.

Long-Term Earnings Growth & Surprise Trend

ONE Gas’ long-term (three to five years) earnings growth rate is projected at 5.85%. The same for National Fuel Gas is pegged at 2.80%.

ONE Gas outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 8.29%. National Fuel Gas surpassed the Zacks Consensus Estimate in two out of the trailing four quarters, with an average negative earnings surprise of 0.24%.

Debt-to-Capital Ratio

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 conduct the business. Currently, ONE Gas has a debt-to-capital ratio of 37.92% compared with the industry’s 49.04% and Zacks S&P 500 composite’s 43.02%. Meanwhile, National Fuel Gas had a debt-to-capital ratio of 50.50%

Dividend Yields

Utility companies generally distribute dividends. Currently, the dividend yield for National Fuel Gas is 3.19%, which is better than ONE Gas’ 2.21%. Currently, the dividend yield of the industry is pegged at 2.49%

Earnings Estimate Revision

Earnings estimates for ONE Gasfor 2019 and 2020 rose 6.46% and 4.34% on a year-over-year basis to $3.46 and $3.61per share, respectively.

Earnings estimates for National Fuel Gas for 2019 and 2020 rose 2.99% and 7.07% on a year-over-year basis to $3.44 and $3.68 per share, respectively.

Outcome

The companies are providing quality services and presently have plans to invest on capital projects. National Fuel Gas plans to invest in the range of $725-$810 million in fiscal 2019.ONE Gasplans to invest $450 million in 2019.

Our comparative analysis shows that ONE Gas has an edge over National Fuel Gas, which makes it a better pick for now.

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