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Zacks Industry Outlook Highlights: Southwest Gas, Spire, South Jersey Industries and ONE Gas
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For Immediate Release
Chicago, IL – August 6, 2019 – Today, Zacks Equity Research discusses Utility-Gas Distribution, including Southwest Gas Corporation (SWX - Free Report) , Spire Inc. (SR - Free Report) , South Jersey Industries and ONE Gas Inc. (OGS - Free Report) .
The Zacks Utility Gas Distribution industry comprises companies that offer services to transport natural gas from the region of production to end users. Gas distribution pipelines play a crucial role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small diameter distribution pipelines. Notably, 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 internationally is driving demand for distribution pipelines.
Let us take a look at the industry’s three major themes:
· Increasing U.S. shale production and the awareness to lower emission have pushed up natural gas production in the United States. Since capacity of the existing pipelines will eventually be inadequate to meet rising transportation requirements, pipeline operators will have enormous opportunities to add new ones.
· The United States has started exporting LNG and volumes should increase as new LNG export terminals are coming into operation. So, demand for dedicated natural gas pipelines will increase as more of the commodity is transported from production zones to LNG export facilities. As a result, more pipelines are being planned in this region to take the produce to consumers and export terminals.
· The ongoing improvement in U.S. natural gas production volumes and increasing LNG export volumes will also call for the addition and expansion of natural gas pipelines. Billions of dollars will be required to construct new natural gas pipelines required to transport natural gas to refineries, terminal and export facilities.
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects.
The Zacks Utility Gas Distribution industry — a 17-stock group within the broader Zacks Utilities sector — currently carries a Zacks Industry Rank #176, which places it at the bottom 31% of the 255 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate.
Before we present a few Gas Distribution stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beat S&P 500 and Sector
The Gas Distribution industry has outperformed the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively gained 9.4% in the past year, while the Utility sector and the Zacks S&P 500 composite have gained 8.6% and 1.5%, respectively, over the same period.
Gas Distribution Industry’s Current Valuation
Since utility companies have a lot of debt on their balance sheets, the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio is commonly used to value them.
The industry is currently trading at trailing 12-month EV/EBITDA of 13X compared with the S&P 500’s 11.46X and the sector’s 13.1X. Over the past five years, the industry has traded as high as 14.16X, as low as 10.22X and at the median of 12.06X.
To Sum Up
The necessity of additions and improvement of gas distribution infrastructure position U.S. pipeline operators well for growth. But the industry continues to face challenges from the renewable space. The technological advances are lowering the cost of operating utility scale renewable power projects and government grants are making them attractive to utility operators. Moreover, rising natural gas production continues to put downward pressure on natural gas prices and producers of the commodity might lower production volumes to accommodate the drop in prices, which could mar the profitability of pipeline operators.
Gas Distribution Stocks to Add Now
Below are four stocks that have been witnessing positive earnings estimate revisions. Of these, one holds a Zacks Rank #2 (Buy) and the others carry a Zacks Rank #3 (Hold).
Southwest Gas Corporation (SWX - Free Report) : The consensus EPS estimate for this Zacks Rank #2, Las Vegas, NV-based gas distribution, gathering and processing company has moved 0.51% higher to $3.92 for the current year over the last 90 days. The stock has gained 14.3% in the past six months.
Spire Inc. (SR - Free Report) : The consensus EPS estimate for this St Louis, MO-based company that engages in the purchase, retail distribution and sale of natural gas to customers has moved 0.3% higher to $3.75 for the current year over the last 90 days. The Zacks Rank #3 stock has gained 3.7% in the past six months.
South Jersey Industries : This Zacks Rank #3 Folsom, NJ-based company is involved in the sale, distribution, storage and transportation of natural gas. Its consensus EPS estimate has remained unchanged at $1.10 for 2019 over the last 90 days. The stock has gained 13.2% in the past six months.
ONE Gas Inc. (OGS - Free Report) : This Tulsa OK-based company, involved in the distribution of natural gas, has seen its consensus EPS estimate move 0.9% higher to $3.49 for 2019, over the last 90 days. The Zacks Rank #3 stock has gained 10.7% in the past six months.
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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.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Southwest Gas, Spire, South Jersey Industries and ONE Gas
For Immediate Release
Chicago, IL – August 6, 2019 – Today, Zacks Equity Research discusses Utility-Gas Distribution, including Southwest Gas Corporation (SWX - Free Report) , Spire Inc. (SR - Free Report) , South Jersey Industries and ONE Gas Inc. (OGS - Free Report) .
Industry: Utility-Gas Distribution
Link: https://www.zacks.com/commentary/458746/weak-near-term-outlook-for-utility-gas-distribution-industry?art_rec=home-home-investment_ideas_stocks-ID07-txt-458746
The Zacks Utility Gas Distribution industry comprises companies that offer services to transport natural gas from the region of production to end users. Gas distribution pipelines play a crucial role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small diameter distribution pipelines. Notably, 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 internationally is driving demand for distribution pipelines.
Let us take a look at the industry’s three major themes:
· Increasing U.S. shale production and the awareness to lower emission have pushed up natural gas production in the United States. Since capacity of the existing pipelines will eventually be inadequate to meet rising transportation requirements, pipeline operators will have enormous opportunities to add new ones.
· The United States has started exporting LNG and volumes should increase as new LNG export terminals are coming into operation. So, demand for dedicated natural gas pipelines will increase as more of the commodity is transported from production zones to LNG export facilities. As a result, more pipelines are being planned in this region to take the produce to consumers and export terminals.
· The ongoing improvement in U.S. natural gas production volumes and increasing LNG export volumes will also call for the addition and expansion of natural gas pipelines. Billions of dollars will be required to construct new natural gas pipelines required to transport natural gas to refineries, terminal and export facilities.
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects.
The Zacks Utility Gas Distribution industry — a 17-stock group within the broader Zacks Utilities sector — currently carries a Zacks Industry Rank #176, which places it at the bottom 31% of the 255 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate.
Before we present a few Gas Distribution stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beat S&P 500 and Sector
The Gas Distribution industry has outperformed the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively gained 9.4% in the past year, while the Utility sector and the Zacks S&P 500 composite have gained 8.6% and 1.5%, respectively, over the same period.
Gas Distribution Industry’s Current Valuation
Since utility companies have a lot of debt on their balance sheets, the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio is commonly used to value them.
The industry is currently trading at trailing 12-month EV/EBITDA of 13X compared with the S&P 500’s 11.46X and the sector’s 13.1X. Over the past five years, the industry has traded as high as 14.16X, as low as 10.22X and at the median of 12.06X.
To Sum Up
The necessity of additions and improvement of gas distribution infrastructure position U.S. pipeline operators well for growth. But the industry continues to face challenges from the renewable space. The technological advances are lowering the cost of operating utility scale renewable power projects and government grants are making them attractive to utility operators. Moreover, rising natural gas production continues to put downward pressure on natural gas prices and producers of the commodity might lower production volumes to accommodate the drop in prices, which could mar the profitability of pipeline operators.
Gas Distribution Stocks to Add Now
Below are four stocks that have been witnessing positive earnings estimate revisions. Of these, one holds a Zacks Rank #2 (Buy) and the others carry a Zacks Rank #3 (Hold).
(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)
Southwest Gas Corporation (SWX - Free Report) : The consensus EPS estimate for this Zacks Rank #2, Las Vegas, NV-based gas distribution, gathering and processing company has moved 0.51% higher to $3.92 for the current year over the last 90 days. The stock has gained 14.3% in the past six months.
Spire Inc. (SR - Free Report) : The consensus EPS estimate for this St Louis, MO-based company that engages in the purchase, retail distribution and sale of natural gas to customers has moved 0.3% higher to $3.75 for the current year over the last 90 days. The Zacks Rank #3 stock has gained 3.7% in the past six months.
South Jersey Industries : This Zacks Rank #3 Folsom, NJ-based company is involved in the sale, distribution, storage and transportation of natural gas. Its consensus EPS estimate has remained unchanged at $1.10 for 2019 over the last 90 days. The stock has gained 13.2% in the past six months.
ONE Gas Inc. (OGS - Free Report) : This Tulsa OK-based company, involved in the distribution of natural gas, has seen its consensus EPS estimate move 0.9% higher to $3.49 for 2019, over the last 90 days. The Zacks Rank #3 stock has gained 10.7% in the past six months.
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 >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.