ATO or OGS: Which Utility Stock Is a Safer Choice for Investors?

Industry Overview - The U.S. natural gas distribution pipeline network is crucial for transporting natural gas to end users, consisting of nearly 3 million mainline and other pipes, driven by rising natural gas usage [1] - Natural gas is increasingly favored for power generation due to its cleaner burning characteristics, with domestic production rising due to increased LNG exports and public awareness of lower emissions [2] Financial Environment - The natural gas pipeline industry requires a consistent flow of funds for maintenance and repair of aging infrastructure, with the Federal Reserve lowering the federal fund rate by one percentage point since September 2024, expected to reduce capital servicing costs for utilities [3] Utility Performance - Utility service providers generally experience steady revenue and profitability growth, allowing for regular dividend payments that enhance shareholder value [4] - The U.S. Energy Information Administration forecasts natural gas consumption for electricity generation to average 38.4 billion cubic feet per day in June, a 26% increase from May, with an overall expected increase of 1% in 2025 [5] Company Analysis - A comparative analysis of Atmos Energy (ATO) and ONE Gas (OGS) shows both companies currently hold a Zacks Rank 2 (Buy) [6] - The Zacks Consensus Estimate for ATO's fiscal 2025 EPS has increased by 0.6% to $7.24, while OGS's EPS estimate has risen by 0.7% to $4.29 [7] Financial Metrics - ATO's return on equity (ROE) is 9.05%, while OGS's ROE is 8.15%, both slightly below the industry average of 9.24% [8] - The debt-to-capital ratios for ATO and OGS are 39.3% and 40.43%, respectively, compared to the industry average of 50.49% [9] - ATO has a current ratio of 1.33, indicating strong liquidity, while OGS's current ratio is 0.59, below the industry average of 0.63 [11] Stock Performance - Over the past six months, ATO's stock has risen by 11.7%, outperforming the industry's 2% growth and OGS's 5.2% increase [10][12] - ATO's dividend yield is 2.23%, while OGS's is 3.64%, both exceeding the S&P 500 Composite's average of 1.25% [14] Conclusion - Both Atmos Energy and ONE Gas are positioned as strong investment opportunities, with ATO being favored due to better debt management, liquidity, and stock performance [15]