On Tuesday, Wells Fargo made a positive adjustment to Atmos Energy's (NYSE:ATO) stock, upgrading it from Equal Weight to Overweight and setting a new price target of $132.00.
The upgrade is based on the company's strong presence in Texas, which is contributing to robust customer growth. This growth and the need to replace aging infrastructure are expected to drive double-digit rate base growth.
The favorable regulatory environment is also a factor, as it allows for approximately 90% of annual capital expenditures to be recovered within six months. Additionally, the majority of the states in which Atmos Energy operates have energy choice legislation, which is not opposed to natural gas. These factors are anticipated to result in a rate base growth of 11-13%, which could lead to an earnings per share (EPS) growth of 6-8%.
Atmos Energy has a history of strong performance, with an 8.8% EPS growth over the last five years and a 9.2% growth over the last ten years through 2023. The company has also consistently delivered fiscal year EPS above the guidance midpoint for the past decade. The analyst highlighted the company's robust balance sheet, noting Atmos Energy's lack of holding company debt and an equity ratio of approximately 60%.
Furthermore, the firm's financial model indicates that the funds from operations (FFO) to debt ratio is greater than 20% (compared to peers in the mid-teens) and a debt to EBITDA ratio of less than 4X (versus peers of around 5X).
Atmos Energy issues equity annually to maintain its strong balance sheet, with $890 million priced under forward agreements as of March 31, 2024, which covers the needs for 2024 and part of 2025.
InvestingPro Insights
Following the positive outlook from Wells Fargo, InvestingPro data provides additional context to Atmos Energy's (NYSE:ATO) financial health and market valuation. The company's market capitalization stands at a solid $17.55 billion, reflecting its significant presence in the energy sector. With a price-to-earnings (P/E) ratio of 17.37, Atmos Energy trades at a valuation that investors may find attractive given its consistent earnings growth. The company's dividend yield of 2.77% as of the last dividend ex-date is also a testament to its commitment to returning value to shareholders, a commitment further underscored by the fact that Atmos Energy has raised its dividend for 31 consecutive years, demonstrating a reliable income stream for investors.
Two InvestingPro Tips that may interest investors include the analysts' revised earnings upwards for the upcoming period and the company's low price volatility, which suggests a stable investment. For those looking to delve deeper, there are additional InvestingPro Tips available, which can be accessed with a subscription. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Investors considering Atmos Energy should note that the company's liquid assets exceed its short-term obligations, indicating a strong liquidity position. Moreover, with analysts predicting profitability for the current year and a proven track record of profitability over the last twelve months, Atmos Energy appears well-positioned to continue its growth trajectory.
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