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3 Gas Distribution Stocks to Watch From a Flourishing Industry
ATOAtmos Energy (ATO) ZACKS·2025-01-09 16:26

Industry Overview - The natural gas distribution industry plays a crucial role in transporting natural gas from production regions to millions of consumers across the United States, utilizing a vast network of underground pipelines [1] - The shale revolution has significantly increased natural gas production, with the US having 3,353 trillion cubic feet of natural gas and a pipeline network of 2.6 million miles [3] - The clean-burning nature of natural gas has steadily boosted demand from all customer groups, with 187 million Americans currently using natural gas [6] Key Drivers and Opportunities - The US Federal Reserve's decision to lower the benchmark interest rate by 100 basis points to 4.25-4.5% is a positive development for capital-intensive utility operators planning large infrastructure investments [4] - Domestic dry natural gas production is expected to increase in 2025, driven by higher production volumes in the Permian and Eagle Ford regions, with LNG export volumes projected to grow by 16.7% year-over-year [5] - Five new LNG export terminals under development in the US are expected to increase combined export capacity by 9.7 Bcf/d by 2025, with LNG export capacity potentially more than doubling from 11.4 Bcf/d in 2023 to 24.4 Bcf/d in 2028 [6] - Natural gas utilities are investing 33billionannuallytoenhancethereliabilityofdistributionandtransmissionsystems,indicatingstronglong−termgrowthpotential[6]IndustryPerformanceandValuation−TheZacksUtilityGasDistributionindustry,comprising13stocks,currentlyholdsaZacksIndustryRankof91,placingitinthetop3633 billion annually to enhance the reliability of distribution and transmission systems, indicating strong long-term growth potential [6] Industry Performance and Valuation - The Zacks Utility Gas Distribution industry, comprising 13 stocks, currently holds a Zacks Industry Rank of 91, placing it in the top 36% of Zacks industries [7][8] - The industry has outperformed the Utility sector with an 18.9% gain over the past year, though it lags behind the S&P 500's 26.5% growth [10] - The industry is trading at a trailing 12-month EV/EBITDA of 11.17X, below the S&P 500's 18.46X and the sector's 14.89X, indicating a potential valuation discount [12] Key Companies - Atmos Energy (ATO) has invested 2.94 billion in fiscal 2024 and plans to invest 3.7billioninfiscal2025tostrengtheninfrastructureandservemorecustomers,withacurrentdividendyieldof2.553.7 billion in fiscal 2025 to strengthen infrastructure and serve more customers, with a current dividend yield of 2.55% [15][16] - New Jersey Resources (NJR) expects capital expenditures of 495-675millionforfiscal2025andoffersacurrentdividendyieldof3.94675 million for fiscal 2025 and offers a current dividend yield of 3.94% [19][20] - MDU Resources plans 2.7 billion in capital investments from 2024-2028 to strengthen its gas distribution operations, with a current dividend yield of 2.89% [22][23]