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]

Key Takeaways NJR's ROE of 17.08% outpaces the utility gas distribution industry average of 9.08%.NJR boosted its dividend by 5.6% to $1.90 annually, marking 30 consecutive years of increases.NJR plans capital spending of $650-$770M in 2025 and $655-$835M in 2026 to strengthen infrastructure.New Jersey Resources' (NJR) infrastructure investments continue to drive benefits for the company, allowing it to serve its growing customer base with greater efficiency. Given its strong growth, NJR makes for a solid i ...

Core Insights - UGI Corporation (UGI) is positioned as a strong investment option in the utility sector due to strategic investments in infrastructure modernization, disciplined capital allocation, and operational improvements [1] Growth Projections - The Zacks Consensus Estimate for fiscal 2025 earnings per share (EPS) has increased by 2.3% to $3.13 over the past 90 days [2] - Projected sales for fiscal 2025 are $7.81 billion, reflecting a year-over-year increase of 8.4% [2] - UGI's long-term earnings growth rate is estimated at 5.2%, with a trailing four-quarter average earnings surprise of 75.7% [2] Return on Equity - UGI's return on equity (ROE) stands at 16.21%, surpassing the industry average of 9.24%, indicating more effective utilization of funds compared to peers [3] Liquidity Position - The company's current ratio is 1.23, which is significantly better than the industry average of 0.63, suggesting sufficient short-term assets to cover liabilities [4] Debt Management - UGI's total debt to capital ratio is 58.34%, which is lower than the sector average of 60.33% [5] - The time-to-interest earned ratio is 2.5, indicating the company's capability to meet future interest obligations comfortably [5] Strategic Investments - UGI is making strategic investments to enhance safety and reliability in natural gas production and storage, with $160 million invested in the fiscal second quarter, 79% of which was allocated to natural gas businesses [6][7] - The company plans to invest $800-$900 million in fiscal 2025 and $3.7-$4.1 billion through fiscal 2027 to strengthen operations [7] Dividend History - UGI has a long-standing history of paying dividends for 141 years, with a 10-year compound annual growth rate (CAGR) of 6% from fiscal 2014-2024 [10] - The current dividend yield is 4.17%, outperforming the Zacks S&P 500 composite's yield of 1.19% [10] Share Price Performance - Over the past three months, UGI shares have increased by 8.5%, compared to the industry's growth of 1.9% [11]

Core Viewpoint - Atmos Energy Corporation (ATO) is positioned to benefit from increasing natural gas demand, supported by a growing customer base and planned investments to enhance pipeline reliability and operational performance [1][2]. Growth Outlook & Financial Performance - The Zacks Consensus Estimate for fiscal 2025 earnings per share (EPS) has risen by 0.3% to $7.24 over the past 60 days [3]. - Fiscal 2025 sales are projected at $4.80 billion, reflecting a year-over-year increase of 15.3% [3][8]. - ATO's long-term earnings growth rate is estimated at 7.2%, with an average earnings surprise of 2.59% over the last four quarters [3]. Investment Returns - ATO's return on invested capital (ROIC) stands at 3.25%, outperforming the industry average of 2.62% [4][8]. - The company's total debt to capital ratio is 39.30%, which is better than the industry average of 50.49% [9]. Strategic Investments & Customer Expansion - ATO plans to invest $3.7 billion in capital expenditures for fiscal 2025 and a total of $24 billion from fiscal 2025 through 2029 to enhance infrastructure and operational capabilities [5][8]. - In the fiscal second quarter of 2025, ATO allocated approximately $225 million to expand its customer base, adding nine new industrial customers with an expected annual load of 8 billion cubic feet (Bcf) [6]. Shareholder Returns - ATO currently pays a quarterly dividend of 87 cents per share, leading to an annualized dividend of $3.48 and a dividend yield of 2.29% [7]. - The company aims to increase its dividend by 6-8% annually through fiscal 2026, pending board approval [7]. Stock Performance - Over the past six months, ATO shares have increased by 10.9%, compared to the industry's growth of 3.1% [10].

Industry Overview - Natural gas distribution companies transport natural gas from production regions to consumers across the U.S., utilizing extensive underground pipeline networks [1] - The industry is transitioning towards cleaner energy, with natural gas serving as a critical bridge fuel for decarbonization goals [1] - The U.S. has 3,353 trillion cubic feet of natural gas and operates a 2.6-million-mile pipeline network, but faces challenges from aging infrastructure and competition from alternative energy sources [3] Future Outlook - U.S. Energy Information Administration (EIA) projects an increase in domestic dry natural gas production in 2025, particularly in the Permian and Eagle Ford regions [4] - LNG export volumes are expected to rise by 22.7% year-over-year in 2025 and 9.6% in 2026, highlighting the importance of gas pipelines for transportation to export terminals [4] - Interest rates have declined by 100 basis points, benefiting capital-intensive utilities planning infrastructure upgrades [5] Investment Opportunities - Natural gas utilities are investing approximately $37 billion annually to enhance the reliability of distribution and transmission systems, indicating long-term growth potential [6] - The Zacks Utility Gas Distribution industry ranks 52, placing it in the top 21% of the 244 Zacks industries, reflecting strong near-term prospects [7][8] Performance Metrics - The Gas Distribution industry has outperformed the S&P 500 and the Utility sector over the past year, with an 18.1% gain compared to 10.8% for the S&P 500 [9] - The industry is currently trading at a trailing 12-month EV/EBITDA ratio of 11.12X, lower than the S&P 500's 16.96X and the sector's 15.09X, suggesting a potential valuation opportunity [12] Company Highlights - **Atmos Energy Corporation (ATO)**: Plans to invest $3.7 billion in fiscal 2025, with a current dividend yield of 2.23% and long-term earnings growth projected at 7.19% [18][19] - **UGI Corporation**: Expected to invest $3.7-$4.1 billion through fiscal 2027, with a dividend yield of 4.12% and long-term earnings growth of 5.2% [22][23] - **ONE Gas Inc. (OGS)**: Aims to invest $4 billion through 2029, with a dividend yield of 3.64% and long-term earnings growth of 5.6% [26][27] - **Northwest Natural Holding Company (NWN)**: Plans to invest $2.5-$2.7 billion through 2030, with a dividend yield of 3.64% [30][31]

Core Viewpoint - Southwest Gas (SWX) is positioned as a strong investment option in the Zacks Utility Gas Distribution industry due to its consistent infrastructure investments, customer growth, and effective debt management [1] Growth Forecast & Surprise History - The Zacks Consensus Estimate for SWX's 2025 earnings per share (EPS) has increased by 5.1% to $3.72 over the past 60 days [2] - The 2026 sales estimate is projected at $5.13 billion, reflecting a year-over-year growth of 6% [2] - SWX's long-term earnings growth rate is forecasted at 9.9%, with an average earnings surprise of 6% over the last four quarters [2] Debt Profile Overview - Southwest Gas has a total debt to capital ratio of 57.36%, which is better than the sector average of 59.23%, indicating a stronger financial position and lower reliance on borrowed funds [3] Strategic Capital Allocation Plan - The company plans to invest $4.3 billion in capital from 2025 to 2029 to meet the growing demand for energy solutions [4] - For 2025, capital expenditure is estimated at $880 million, aimed at customer growth, system enhancements, and pipe replacement initiatives [4] Customer Base Growth - Southwest Gas serves a diverse customer base across Arizona, Nevada, and California, having installed 40,000 first-time meter sets in the 12 months ending March 31, 2025 [5] - The company anticipates a 1.4% annual increase in customers through 2029, which is expected to enhance its performance [5] Return to Shareholders - The company has been consistently increasing shareholder value through dividends, currently paying a quarterly dividend of 62 cents per share, leading to an annualized dividend of $2.48 [6] - The current dividend yield stands at 3.36%, outperforming the Zacks S&P 500 Composite average of 1.25% [6] Stock Performance - In the past month, SWX shares have increased by 4.3%, compared to the industry's growth of 1.4% [9]

Core Viewpoint - UGI Corporation's planned investments are expected to enhance its aging infrastructure and improve overall performance, making it a strong investment option in the utility sector due to growth opportunities and a solid return on equity (ROE) [1] Group 1: Growth Projections - The Zacks Consensus Estimate for fiscal 2025 earnings per share (EPS) has increased by 3.3% to $3.13 [2] - The Zacks Consensus Estimate for fiscal 2025 sales is projected at $7.81 billion, reflecting a year-over-year increase of 8.4% [2] - UGI's long-term earnings growth rate is estimated at 5.2%, with a trailing four-quarter average earnings surprise of 75.7% [2] Group 2: Financial Health - UGI's current ratio stands at 1.23, surpassing the industry average of 0.63, indicating sufficient short-term assets to cover liabilities [3] - The company's ROE is 16.21%, significantly higher than the industry average of 9.24%, demonstrating effective utilization of funds [4] - UGI's total debt to capital ratio is 58.34%, better than the sector's average of 59.23%, and the time-to-interest earned ratio is 2.5, indicating strong ability to meet interest obligations [5] Group 3: Dividend Performance - UGI has a long history of paying dividends for 141 years, with a current quarterly dividend of 37.5 cents per share, leading to an annualized dividend of $1.50 [6] - The compound annual growth rate (CAGR) for UGI's 10-year dividend is 6% for fiscal 2014-2024, and the current dividend yield is 4.1%, above the industry's average of 3.28% [6] Group 4: Strategic Investments - UGI plans to invest $800-$900 million in fiscal 2025 and up to $4.1 billion by 2027 to modernize its infrastructure [8][10] - These investments aim to enhance safety and reliability in natural gas production and storage, as well as replace aging infrastructure to efficiently serve an expanding customer base [9] - UGI has added over 6,600 residential heating and commercial customers year to date [9]