We have recalibrated our investment thesis on energy services
AGL Resources Inc.
) to Neutral from Underperform.
ATMOS ENERGY CP (ATO): Free Stock Analysis
AGL RESOURCES (GAS): Free Stock Analysis Report
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Founded in 1856, Atlanta, Georgia-based AGL is an energy services
holding company, whose principal business is gas distribution.
Following the acquisition of Naperville, Illinois-based Nicor Inc.
in December last year, AGL Resources has become the largest
domestic natural gas-only distribution entity with about 4.5
million customers across seven states.
AGL Resources is a premier electric utility with relatively low
risk earnings growth and pays an annual dividend of $1.84 per
share, yielding an attractive 4.5%. The utility increased its
dividend payout by 2% in February 2012, maintaining its streak of
dividend hikes for seven consecutive years. AGL Resources has a
long and consistent dividend paying record. The company has paid
dividends in each of the last 259 quarters for more than 60 years.
As such, we believe AGL Resources' dividend to be safe and
Positioned in a niche industry with high barriers to entry, the
company enjoys near-monopoly status in its area of operation. On
top of this, the utility's best-in-class cost control and
recession-proof business model presents a unique opportunity to own
a safe stock. Sporting a low beta - translating into less
volatility - and a cheap valuation, we see AGL Resources as a core
holding in the energy infrastructure space.
Overall, we see AGL Resources is a quality utility that provides
the security of regularly expanding dividend payments as well as
the potential for moderate-to-high capital appreciation. In
particular, the safety and reliability of AGL Resources'
distribution operations - that contribute more than three fourths
of its operating profits - and the utility's consistent earnings
make it a must-hold for income-oriented investors.
While being incrementally more positive on AGL Resources - one of
the major distributors of natural gas in the nation along with the
Atmos Energy Corp.
) - its investment in higher-risk unregulated operations, ongoing
regulatory uncertainties and the challenging economic environment
keeps us on the sidelines. Our new long-term Neutral recommendation
is supported by a Zacks #3 Rank (short-term Hold rating).