Is Atmos Energy Stock A Buy?

Is Atmos Energy Stock A Buy? When it comes to energy stocks, investors consider them a mixed bag. While it’s hard to imagine a world not dependent on the types of energy we use today, there are those in government and the private sector who would like to become less reliant on energy forms considered bad for the environment, especially fossil fuels.

Among the contenders is Atmos Energy Corp was founded in 1906 and its headquarters are located in Dallas, Texas.

What Does Atmos Energy Do?

The company and its subsidiaries are engaged in regulated distribution of natural gas, as well as pipeline management and natural gas storage in the United States.

Its divided into three segments:

• Distribution
• Pipeline
• Storage

Distribution is responsible for sales operations and distribution of natural gas in eight US states, and is responsible for around 3 million customers from residential to industrial, commercial, and public segments. By October 2019, Atmos owned nearly 71,000 underground miles of mains.

Pipeline transports third-party natural gas and Storage manages five underground reservoirs in the state of Texas. These segments also provide other services within the industry, such as parking, lending, and sale of inventory.

In the Pipeline segment, there are also nearly 6,000 miles of transmission lines. 

Is Atmos Energy Stock a Buy?

Atmos Energy has a fair market valuation according to analysts of $107 per share. Prices below that suggest the company has upside potential.

Of the eight analysts that cover the company, five recommend it as a Buy while 3 list it as a hold and there are currently no Sell recommendations.

What does stand about ATO share price for investors is its price volatility, which is high. That’s a double-edged sword meaning there’s lots of upside buying dips or shorting highs but equally losses could be high if buying when the reward to risk ratio is poor.

There’s sufficient financial data to make an informed decision. Let’s break it down:

• Currently a profitable company
• Analysts think earnings will continue growing at almost 9.9% per year over the coming three years
• Share prices have remained relatively stable for the current quarter
• Earnings are of high quality
• Over the last five years, earnings have grown nearly 13% every year
• Profit margins continue to improve
• Revenue is sizeable, coming it at around $3 billion
• Meaningful market cap of around $12 bilion
• Has reliably paid dividends of 2.59%
• Dividend is sustainable
• No events of concern have been discovered

So, that sounds great – but are there any reasons you might not want to invest in Atmos Energy stock?

Risks Of Buying Atmos Energy Stock

Well, just as you look at the profitability of a company when considering an investment, you also weigh the cons – what about Atmos Energy might dissuade you from putting your money in shares?

• The company has high debts and aren’t in a good financial position
• Significant shareholder dilution over the past year

One other notable point is that earnings are choppy looking forward. They do follow a seasonal pattern of strong Q1 and Q2 figures while the latter half of the year shows a sequential decline.

So, the pros of Atmos Energy certainly outweigh the cons – but the company does have competition.

What companies are Atmos’ competitors, and can they beat Atmos Energy Corp?

Atmos Energy Vs Vistra & Centerpoint

Atmos Energy’s most prominent competitors include Vistra Corp (VST) and CenterPoint Energy (CNP). How do these companies compare with Atmos?

Vistra Corp stock is considered potentially undervalued. For a value investor, Vistra’s December 2020 trading price of $18.87 per share doesn’t quite match with its revenues.

Vistra reported earnings per share of over a dollar for Q3 2020, which beat most analysts’ projections by nearly $0.60 per share. 

Analyst expectations peg the upside target share price at $28.27, a meaningful hike over current levels.

CenterPoint Energy appears fairly valued with 11 analysts placing it on hold and just 4 tagging it with a Buy rating, while none have a Sell rating on the company. 

The consensus estimate among all analysts is that Centerpoint fair market value or intrinsic value is $24, which is approximately where the shares were trading at recently.

Still, the annual range of share prices has swung from as low as $11 to as high as $27, suggesting whichever way the share price goes, turbulence is on the horizon.

Is Atmos Energy Stock a Buy? – The Bottom Line

While Atmos hasn’t fully recovered from its bottomed-out pricing of around $80 per share in April 2020, the natural gas company has rebounded better than most. Is Atmos a buy for you?

This is a stock that you would likely need to buy now and hold for some time before it rebounds to pre-COVID price levels. If you’re a patient investor, Atmos might be just the stock you’ve been looking for.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.