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

The shale revolution has substantially increased the production of natural gas, which has become a preferred choice of fuel in the United States. Wide availability and a clean-burning nature are steadily boosting the demand for natural gas in the electric power, industrial, commercial and residential markets even though it faces competition from other clean sources like renewable energy.

Gas distribution pipelines play a vital role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small-diameter pipelines. Currently, the United States has nearly 3 million miles of natural gas pipelines that ensure a steady supply to millions of customers.

Demand from the rising natural gas customer volume and the usage of natural gas to produce electricity will play a pivotal role in the utilities’ gradual transition toward clean energy. The recent short-term energy outlook released by the U.S. Energy Information Administration (“EIA”) indicates that domestic dry natural gas production will grow 2.7% in 2022 to a record-high 96.0 billion cubic feet per day (Bcf/d) in 2022 and 97.6 Bcf/d in 2023.

EIA expects annual U.S. natural gas consumption to remain relatively unchanged in 2022 and increase slightly in 2023 due to the higher usage of natural gas in the industrial sector. Higher demand for natural gas in Europe and Asia will result in an increase in exports of liquefied natural gas to overseas destinations. Higher production and export volumes will definitely increase usage and demand for natural gas pipelines in the United States.

In this article, we run a comparative analysis on two Utility - Gas Distribution companies — New Jersey Resources Corporation NJR and Atmos Energy Corporation ATO— to decide which stock is a better pick for your portfolio now.

Both the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

New Jersey Resources Corporation has a market capitalization of $4.2 billion, while the same for Atmos Energy Corporation is $15.4 billion.

Growth Projections & Earnings Surprise

The Zacks Consensus Estimate for New Jersey Resources’ fiscal 2022 earnings is pegged at $2.3 per share on revenues of $2.41 billion. The bottom line suggests a year-over-year increase of 5.6%.

The Zacks Consensus Estimate for Atmos Energy’s fiscal 2022 earnings is pegged at $5.5 per share on revenues of $4.04 billion. The bottom line suggests a year-over-year increase of 7.6%.

New Jersey Resources delivered a negative average earnings surprise of 14.3% in the last four quarters, while Atmos Energy delivered an average earnings surprise of 4.4% in the last four quarters.

Price Performance

In the past six months, NJR shares have rallied 22.1% compared with the industry's growth of 13.3%. Shares of ATO have rallied 25.7% in the same period.


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Debt-to-Capital

Debt-to-capital is a good indicator of the financial position of a company. The indicator shows how much debt is used to run the business. New Jersey Resources and Atmos Energy have a debt-to-capital of 62.3% and 49%, respectively, compared with the industry’s 50.1%.

Dividend Yield & Long-Term Earnings Growth

Utility companies generally distribute dividends. Currently, the dividend yield for New Jersey Resources is pegged at 3.3%, while Atmos Energy’s dividend yield is 2.4%. Both the companies’ dividend yield is better than the Zacks S&P 500 composite’s average of 1.47%.

New Jersey Resources’ long-term (three to five years) growth is currently pegged at 6%. Atmos Energy’s long-term earnings growth is pegged at 7.3%.

Return on Equity

Return on Equity (ROE) is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for New Jersey Resources and Atmos Energy is 13.4% and 8.8%, respectively. New Jersey Resources has outperformed the industry’s ROE of 10.13%.

Outcome

Although both the companies are efficiently providing services to customers, Atmos Energy, with its consistent earnings surprise and efficient debt management, is a better stock to add to your portfolio.


Zacks Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.

This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.

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Atmos Energy Corporation (ATO): Free Stock Analysis Report
 
NewJersey Resources Corporation (NJR): Free Stock Analysis Report
 
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