On Feb 7, 2013, we downgraded energy services holding company
AGL Resources Inc.
) to Underperform from Neutral, considering its weak fundamentals
and tepid outlook. The disappointing fourth quarter results and a
number of other challenges have added to this bearishness, which
is supported by a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
AGL Resources recently reported lower-than-expected EPS for the
December quarter - 91 cents versus the Zacks Consensus Estimate
of $1.01 - affected by higher operating expenses.
We expect shareholder sentiment toward the company to remain
lukewarm, considering its investment in higher-risk unregulated
operations and the uncertain economic environment.
Causes for Concern
The outlook for AGL Resources' wholesale segment continues to be
less than favorable. We believe that margins in this unit will be
under pressure, based on narrow spreads for transportation and
During the next few quarters, AGL Resources' shipping segment
results may also remain weak. The absence of a strong economic
recovery in the U.S. continues to have a negative impact on
tourism and the economies in Tropical Shipping's service
territories (particularly in the Bahamas and the Caribbean).
Natural gas distribution is usually a temperature-sensitive
business with about half of all deliveries used for space
heating. Usually, almost 75% of the deliveries and sales occur
during the six-month period of October through March.
Consequently, milder-than-normal weather conditions in the future
could adversely effect AGL Resources' operating results, cash
flow and financial condition.
Stocks That Warrant a Look
While we expect AGL Resources to perform below its peers and
industry levels in the coming months and see little reason for
investors to own the stock, one can look at
Atmos Energy Corp.
Clean Energy Fuels Corp.
) as good buying opportunities. These natural gas distributors -
sporting a Zacks Rank #2 (Buy) - have solid secular growth
stories with potential to rise from current levels.
ATMOS ENERGY CP (ATO): Free Stock Analysis
CLEAN EGY FUELS (CLNE): Free Stock Analysis
(CPYYY): ETF Research Reports
AGL RESOURCES (GAS): Free Stock Analysis
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