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ONE Gas (OGS) to Gain From Regulated Earnings & Investments

·3-min read

ONE Gas Inc. OGS has been gaining from regulated earnings and increased demand from residential customers. New rates and systematic capital expenditure will continue to drive the performance.

ONE Gas has delivered an average earnings surprise of 2.39% in the last four quarters.  OGS’ long-term (three to five years) earnings growth is currently pegged at 5%. ONE Gas’current dividend yield of 3% is better than the Zacks S&P 500 Composite’s yield of 1.38%.

Tailwinds

In the 2021-2025 period, ONE Gas aims at investing $3 billion for strengthening operations. Nearly 65-70% of the planned capital expenditure will be directed toward the systems’ integrity and replacement projects. The company aims at replacing 900 miles of vintage pipelines over the 2021-2025 period. OGS has identified 4,280 miles of pipelines to be replaced post 2026 and beyond.

ONE Gas has been gaining from a steady increase in the customer base every year since 2015. In the first nine months of 2021, the customer volume improved nearly 1% from the year-ago comparable period. The majority of the total customer base comprises residential customers. This, in a way, provides stability to ONE Gas’ earnings as the loss of any customer will not substantially affect its top line.

New rates approval in Oklahoma, Kansas and Texas from the commission in the second half of 2021 will boost annual revenues of the company and enable it to continue with infrastructure strengthening initiatives.

Headwinds

ONE Gas operates in a highly competitive space and has to ensure high-quality services, which involves additional expenses. Any upward movement in the price of natural gas or a fall in the price of electricity or other energy products will make natural gas less attractive to customers and hence reduce its demand, hurting the prospects of ONE Gas. Even the implementation of strict regulations from federal, state and local governmental authorities can result in significant fines or penalties and adversely affect OGS’ operations or financial results.

Systematic Investments in Infrastructure

Utilities continue to make systematic investments in their infrastructure to provide better services to their customers.  These investments were directed to change old pipelines, create new storage facilities and focus on renewable assets to generate clean energy. Apart from ONE Gas, utilities like Dominion Energy Inc. D, Atmos Energy Corp ATO and American Water Works Company AWK among others are also making regular investments in their infrastructure.

Dominion Energy plans to invest $32 billion in the 2021-2025 period to strengthen the existing infrastructure. Over the next 15 years, Dominion Energy aims at investing $72 billion for strengthening the infrastructure and adding more clean power generation assets to the portfolio.

Atmos Energy is planning to invest in the range of $13-$14 billion from fiscal 2022 through 2026, out of which more than 80% will be allocated to enhance the safety of the existing operations. The planned investment will result in 6-8% annual earnings growth over the same time frame.

American Water Works has plans to invest $13-$14 billion in the 2022-2026 period and $28-$32 billion in the 2022-2031 period. In 2022, American Water Works is planning to make capital investments of nearly $2.5 billion, with a major portion to be utilized for infrastructure improvements in Regulated businesses.

The long-term (three to five years) earnings growth of D, ATO and AWK is 6.59%, 7.27% and 8.08%, respectively.


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Dominion Energy Inc. (D) : Free Stock Analysis Report
 
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