Industry Overview - The natural gas distribution industry is experiencing rising demand due to the clean-burning nature of natural gas, which is essential for transporting gas from production regions to consumers across the U.S. [1][3] - The U.S. has a substantial natural gas reserve of 3,353 trillion cubic feet and a pipeline network of 2.5 million miles [4]. Key Trends - The shale revolution has significantly increased natural gas production, leading to higher demand from various customer groups [3]. - The industry faces challenges from aging infrastructure, with many pipelines nearing the end of their effective service life, raising safety and maintenance concerns [6]. - Competition from other clean energy sources is increasing, as renewable energy projects become more affordable and reliable, potentially impacting the demand for natural gas [5]. Financial Insights - The Zacks Utility Gas Distribution industry currently ranks 149 out of 243 Zacks industries, indicating weak near-term prospects, with a negative earnings outlook as earnings estimates for 2025 have decreased by 7.7% since December 31, 2024 [10][11]. - The Gas Distribution industry has underperformed compared to the S&P 500 and the Utility sector, with an 8.5% gain over the past year compared to 14.5% for the Utility sector and 16.1% for the S&P 500 [12]. Valuation Metrics - The industry is trading at a trailing 12-month EV/EBITDA ratio of 10.35X, which is lower than the Zacks S&P 500 composite's 18.77X and the sector's 15.27X [13]. Company Highlights - **Atmos Energy Corp.**: Plans to invest $3.6 billion in fiscal 2026 to enhance infrastructure and replace old pipelines, with a current dividend yield of 2.4% and long-term earnings growth projected at 7.98% [15][16]. - **Brookfield Infrastructure Corp.**: Engaged in natural gas and electricity supply, recently signed a $5 billion deal with Bloom Energy and a $20 billion partnership with Qai, with a dividend yield of 3.68% and significant earnings growth estimates [17][18]. - **Spire Inc.**: Focused on organic expansion through infrastructure investments, plans to invest approximately $809 million in fiscal 2026, with a dividend yield of 3.82% and long-term earnings growth estimated at 10.54% [19][20].

Industry Overview - Natural gas distribution companies transport natural gas from production regions to consumers across the U.S., with a significant underground pipeline network of 2.6 million miles [2] - The shale revolution has increased natural gas production, leading to higher demand due to its clean-burning nature [2] - The U.S. has 3,353 trillion cubic feet of natural gas, and the industry faces challenges such as aging infrastructure and rising investment costs due to interest rate hikes [2] Future Outlook - The U.S. Energy Information Administration (EIA) projects that domestic dry natural gas production will increase in 2025, particularly in the Permian Basin [3] - EIA expects U.S. liquefied natural gas (LNG) export volumes to rise by 25% year-over-year in 2025 and by 6.7% in 2026, highlighting the importance of gas pipelines for transportation to export terminals [3] Interest Rate Impact - The Federal Reserve's recent interest rate cut of 100 basis points to a range of 4.25-4.5% is expected to benefit capital-intensive utilities, allowing for easier access to financing for infrastructure upgrades [4] - Further rate cuts are anticipated in 2026, which would positively impact utility operators planning large investments [4] Competitive Landscape - Natural gas faces increasing competition from renewable energy sources, which are becoming cheaper and more reliable due to advancements in technology and battery storage [5] - The rise of on-site generation reduces reliance on long-distance infrastructure, posing economic risks for new pipeline investments [5] Industry Performance - The Zacks Utility Gas Distribution industry currently ranks 190, placing it in the bottom 22% of the 245 Zacks industries, indicating weak near-term prospects [6] - Earnings estimates for the industry have decreased by 20.9% since September 31, 2024, reflecting a negative outlook [7] Stock Market Performance - Over the past year, the Gas Distribution industry has gained 6.5%, outperforming the Utility sector's growth of 5.4% but lagging behind the Zacks S&P 500 composite's 19.9% increase [9] Valuation Metrics - The industry is trading at a trailing 12-month EV/EBITDA ratio of 11.28X, compared to 18.35X for the Zacks S&P Composite 500 and 15.06X for the sector [12] - Historical trading ranges for the industry have been between 9.55X and 12.4X, with a median of 10.9X over the past five years [12] Company Highlights - **Sempra Energy (SRE)**: Plans to invest $56 billion from 2025-2029, with a current dividend yield of 3.09% and long-term earnings growth projected at 7.01% [18][19] - **Atmos Energy (ATO)**: Invested $2.94 billion in fiscal 2024 and plans to invest $3.7 billion in fiscal 2025, with a current dividend yield of 2.1% and long-term growth of 7.32% [22][23] - **New Jersey Resources (NJR)**: Aims to invest $650-$770 million in fiscal 2025 and $655-$835 million in fiscal 2026, with a current dividend yield of 3.82% [26][27] - **ONE Gas Inc. (OGS)**: Plans to invest $4 billion through 2029, with a current dividend yield of 3.53% and long-term growth projected at 5.56% [30][31]