CPK or NJR: Which Is a Better Utility Gas Distribution Stock?

Industry Overview - Natural gas distribution pipelines are essential for delivering natural gas to consumers, with nearly 3 million pipelines in the U.S. [1] - The demand for distribution pipelines is increasing due to rising natural gas consumption both domestically and internationally [2] Financial Environment - The natural gas industry requires consistent funding to address aging infrastructure and maintain pipelines [3] - The Federal Reserve has lowered the federal fund rate by one percentage point since September 2024, with further reductions expected in 2025, benefiting capital-intensive utilities [3] Utility Companies Performance - Utility service providers typically experience steady revenue growth and profitability, enhancing shareholder value through dividends [4] - Chesapeake Utilities (CPK) has a market capitalization of $2.90 billion, while New Jersey Resources (NJR) has$4.86 billion [6] Growth Projections - Chesapeake Utilities is projected to have 2025 earnings of $6.27 per share on revenues of$849.1 million, indicating a 16.3% increase in earnings and 7.9% revenue growth [7] - New Jersey Resources is expected to have earnings of $3.15 per share on revenues of$1.83 billion, reflecting a 7.5% increase in earnings and 1.7% revenue growth [7] Stock Performance - Over the past six months, NJR shares have increased by 2.1%, while CPK shares have risen by 0.9%, contrasting with a 4.9% decline in the industry [8] Debt and Financial Ratios - Chesapeake Utilities has a debt-to-capital ratio of 51.63%, and New Jersey Resources has 59.64%, both below the sector average of 60.26% [10] - The times interest earned (TIE) ratio for CPK is 3.4, and for NJR it is 4.2, indicating both companies have maintained financial flexibility to meet debt obligations [11] Dividend Yield - Chesapeake Utilities has a dividend yield of 2.06%, while New Jersey Resources has a yield of 3.76%, both exceeding the S&P 500 Composite average of 1.27% [12] Investment Recommendation - Both Chesapeake Utilities and New Jersey Resources are positioned as strong investments, with NJR being favored due to its superior TIE ratio, dividend yield, and stock performance [13]