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Atmos Energy (ATO) Gains From Investment & New Rates

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We have recently issued an updated research report on Atmos Energy ATO. The company is well poised to benefit from the $10-$11billion long-term investment plan to strengthen its infrastructure. The investment will result in 6-8% annual earnings growth over the same time frame.

Driving Factors

From fiscal 2015 to fiscal 2019, Atmos Energy invested $6.4 billion for replacing aging infrastructure and modernizing the system. The company plans to invest $10-$11 billion over the next five years, indicating a rise of 7-8% annually over that time frame. Atmos Energy intends to replace up to 6,000 miles of old transmission and distribution lines over the next five years to make its systems more reliable.  

Positive regulatory outcomes ensure timely recovery of invested amount and provide the company with necessary sources to continue with its long-term investments. More than 90% of Atmos Energy’s annual capital investments start earning returns within six months and nearly 99% in no more than 12 months. Owing to positive regulatory outcome, $116.7 million and $56.8 million increase in rates has been implemented in fiscal 2019 and fiscal 2020, respectively.

Atmos Energy is working to lower methane emission from current levels and is investing for the expansion of its gas storage facility. The decision to add third cavern at the Bethel Salt Cavern Storage project will help the company to capitalize on the rising demand for natural gas.

Issues That May Offset the Positives

Nearly 70% of Atmos Energy’s consolidated operations are located in Texas. Its operations and financial results are vulnerable to state economic conditions, weather patterns and regulatory decisions. If any of the conditions is less favorable, it will hurt earnings and profitability.

The company has to compete with other suppliers of natural gas and alternative fuels for sales to industrial customers. In addition, it has to compete with electric utilities like natural gas, as well as electricity used for space and water heating and cooking market.

Price Performance

Shares of Atmos Energy have outperformed its  industry in past 12 months.

Zacks Rank & Other Picks

Atmos Energy currently has a Zacks Rank #2 (Buy). Other top-ranked stocks in the same sector are ONE Gas Inc. (OGS - Free Report) , Alliant Energy Corporation LNT and Eversource Energy ES all carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long term earnings growth of ONE Gas, Alliant Energy and Eversource are pegged at 6%, 5.49% and 5.63%, respectively.

The Zacks Consensus Estimate for 2019 earnings of ONE Gas, Alliant Energy and Eversource has moved up 0.3%, 1.8% and 0.9%, respectively, in past 60 days.

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