Atmos Energy ATO and its subsidiaries are engaged in regulated natural gas distribution and storage businesses. The company reliably serves more than 3 million distribution customers across eight states.
Let’s focus on the factors that make this Zacks Rank #2 (Buy) stock a strong investment pick at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for earnings for fiscal 2020 has moved up 0.2% to $4.7 per share in the past 60 days, while the same for fiscal 2021 has been unchanged at $5.03 in the same time frame.
Return on Equity (ROE)
Return on Equity shows how efficiently the company’s management is utilizing shareholder funds to generate income. Atmos Energy’s ROE of 9.35% compared with the industry average of 8.89% indicates that it is more efficient in utilizing shareholders’ funds than industry peers.
Investments & Rate Hikes
During fiscal 2015-2019, the company invested $6.4 billion in replacing aging infrastructure and modernizing the system. In fiscal 2020, it intends to invest $1,850-$1,950 million to strengthen infrastructure, indicating an increase from the fiscal 2019 level of $1,693 million. Out of the total fiscal 2020 spending, 86% will be spent on maintaining the safety and reliability of its services.
More than 90% of Atmos Energy’s annual capital investments start generating returns within six months and nearly 99% in no more than 12 months. Customers and investors gain from the constructive rate outcomes. Owing to positive regulatory outcome, $115.2 million and $58.2 million increase in rates has been implemented in fiscal 2019 and 2020 (till May 6), respectively. In addition, nearly $215.8 million rate cases are in progress for implementation this fiscal year.
The company has a strong investment grade credit rating. Its total liquidity at the end of Apr 30, 2020 was $2.9 billion, which was enough to meet debt obligations. At the end of second-quarter fiscal 2020, the company’s times interest earned ratio was 8.3, which improved from 7.6 at the end of fiscal first-quarter 2020. This ratio was much better than the industry average of 2.79. The strong ratio indicates that it will be able to meet the current debt obligations without any difficulty.
In the past 24 months, Atmos Energy’s shares have gained 10.9% against the industry’s decline of 19.4%.
Long-Term Growth and Dividend Yield
The company’s long-term (three to five years) earnings growth is projected at 7.2%, courtesy of well chalked-out capital investment plans, regular rate revisions and strong contribution from residential customers.
Its current dividend yield is 2.29%, higher than the Zacks S&P 500 composite’s average of 1.83%.
Other Key Picks
Other top-ranked stocks in the same sector include NextEra Energy NEE, Sempra Energy SRE and DTE Energy Company DTE, each carrying a Zacks Rank of 2.
The Zacks Consensus Estimate for 2020 earnings for NextEra Energy, Sempra Energy and DTE Energy has moved up 0.4%, 2.3% and 0.5%, respectively, in the past 60 days.
Long-term (three to five years) earnings growth for NextEra Energy, Sempra Energy, and DTE Energy is currently projected at 7.9%, 7.2% and 5.5%, respectively.
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