Strong Customer Satisfaction Will Support Long-Term Revenue Stability

Key Takeaways

• Infrastructure improvements and new customers are set to boost revenue and operational efficiency while enhancing supply reliability and versatility.
  
• Strategic financial planning alongside regulatory actions aims to drive income growth and stability through system modernization and customer satisfaction.
  
• High spending and financing reliance may strain earnings, while regulatory uncertainties pose risks to revenue and financial performance.

Catalysts

Engages in the regulated natural gas distribution, and pipeline and storage businesses in the United States.

• Continued system modernization and customer growth, with over 59,000 new customers added, particularly in Texas, are expected to drive future revenue increases.
  
• Infrastructure enhancements, such as new pipeline projects and interconnections, are set to improve supply reliability and versatility, supporting future revenue and operational efficiency.
  
• Rate increases and regulatory filings across various jurisdictions are projected to bolster operating income, enhancing overall earnings.
  
• Anticipated increases in capital expenditure for system growth and modernization suggest higher potential earnings growth, supported by strategic equity and debt financing.
  
• Strong customer satisfaction ratings and operational excellence, recognized by industry awards, may contribute to maintaining and increasing customer base, impacting long-term revenue stability.

Atmos Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atmos Energy's revenue will grow by 11.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.9% today to 26.0% in 3 years time.
• Analysts expect earnings to reach $1.5 billion (and earnings per share of $8.53) by about March 2028, up from $1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, up from 21.8x today. This future PE is greater than the current PE for the US Gas Utilities industry at 19.0x.
• Analysts expect the number of shares outstanding to grow by 5.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Atmos Energy Future Earnings Per Share Growth

Risks

• High capital expenditure plans could lead to increased financial strain, impacting future earnings due to potential rate lags and uncertainties in recovering investments.
  
• Incremental compliance and safety-related spending, such as lease surveys and pipeline inspections, could lead to higher operating expenses, affecting net margins.
  
• Rising bad debt expenses and increased employee-related costs, due to higher service demands, might erode operating income and pressure net margins.
  
• Continued reliance on equity and long-term debt financing to fund capital plans could affect financial leverage and increase interest obligations, impacting net earnings.
  
• Regulatory uncertainties associated with rate case implementations and recovery mechanisms in different jurisdictions could lead to potential revenue shortfalls, affecting overall financial performance.

Valuation

• The analysts have a consensus price target of $151.323 for Atmos Energy based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $148.6, the analyst price target of $151.32 is 1.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.