Last Update 06 Nov 25
Fair value Increased 3.03%OGS: Future Regulatory Developments And Texas Legislation Will Shape Sector Discount
ONE Gas's fair value was recently revised upward from $80.07 to $82.50 per share. Analysts cite improved legislative support, regulatory catalysts, and favorable sector dynamics as drivers for their increased price targets.
Analyst Commentary
Recent research updates indicate a mix of optimism and caution among equity analysts covering ONE Gas. Their views reflect ongoing sector dynamics, regulatory developments, and comparative valuation insights.
Bullish Takeaways- Bullish analysts highlight the positive impact of recent legislative changes in Texas. These measures are expected to support earnings growth and provide stability to regulated operations.
- Several price target increases have been attributed to a more favorable regulatory environment and upcoming regulatory catalysts. These factors are anticipated to facilitate favorable rate case outcomes and enhance long-term profitability.
- ONE Gas is seen as trading at an attractive valuation and is currently at a modest discount relative to peers in the regulated utility sector. This supports the possibility of further upside potential if the discount is reduced.
- Sector dynamics, such as utilities outperforming the broader market in recent months, contribute to a more constructive demand outlook. This bolsters analyst confidence in the company's near-term execution and financial health.
- Some cautious analysts are moderating their expectations by lowering price targets. This reflects concerns about near-term regulatory outcomes and the pace of growth in the competitive utility landscape.
- Ongoing updates to sector-wide valuations suggest there is uncertainty around the timing of rate relief and potential impacts from sector-specific headwinds, such as evolving interconnection times for infrastructure projects.
- Despite recent legislative support and favorable valuation, there is still skepticism about the magnitude and speed at which ONE Gas can close the valuation gap with its regulated utility peers in North America.
What's in the News
- ONE Gas, Inc. updated its 2025 earnings guidance, narrowing the expected net income range to $262 million to $266 million. This compares to its previous forecast of $261 million to $267 million (Key Developments).
- Earnings per diluted share for 2025 are now projected at $4.34 to $4.40, slightly tightened from the prior range of $4.32 to $4.42 (Key Developments).
- The midpoint for both net income and earnings per share guidance remains unchanged at 2.5% above the company’s original 2025 forecasts (Key Developments).
Valuation Changes
- Fair Value per share has risen moderately from $80.07 to $82.50, reflecting increased analyst confidence in the company’s outlook.
- Discount Rate remains unchanged at 6.78%, indicating analyst risk assumptions are stable.
- Revenue Growth projection has declined from 2.10% to 1.56%, signaling expectations for slower topline expansion.
- Net Profit Margin has improved slightly, moving from 13.29% to 13.65%.
- Future Price-to-Earnings (P/E) ratio is essentially unchanged, moving marginally higher from 21.01x to 21.05x.
Key Takeaways
- Sustained regional growth and regulatory support enable steady customer additions, reliable revenue streams, and improved profit margins for ONE Gas.
- Ongoing investments in infrastructure and rising commercial demand position the company for scalable expansion and enhanced long-term earnings.
- High capital spending, regional concentration, rising costs, regulatory dependence, and industry decarbonization trends threaten long-term margin stability and growth prospects.
Catalysts
About ONE Gas- Operates as a regulated natural gas distribution utility company in the United States.
- Sustained population growth and urbanization in Texas, Oklahoma, and Kansas is fueling above-trend new customer additions-including a 9% year-over-year jump in new meters installed-that supports persistent, organic top-line revenue growth.
- The shift toward electrification is gradual, with natural gas remaining the preferred and affordable solution for heating, cooking, and industrial use in ONE Gas's core regions; this underpins stable customer retention and long-term regulated revenue visibility.
- Favorable regulatory developments, particularly Texas House Bill 4384, enable full recovery of capital expenditures and reduce regulatory lag, which is anticipated to drive higher earnings and more predictable net profit margins in the coming years.
- Accelerating capital investment in system reinforcement and modernization (such as the Austin system project), in response to both safety and demand, expands the regulated rate base, resulting in higher allowed returns and EPS growth.
- Robust inbound commercial and industrial demand-including interest from data centers and advanced manufacturing-creates scalable growth opportunities likely to drive incremental revenue and bolster earnings over the medium to long term.
ONE Gas Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming ONE Gas's revenue will grow by 3.5% annually over the next 3 years.
- Analysts assume that profit margins will increase from 10.6% today to 12.5% in 3 years time.
- Analysts expect earnings to reach $322.7 million (and earnings per share of $4.97) by about September 2028, up from $247.7 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.5x on those 2028 earnings, up from 18.1x today. This future PE is greater than the current PE for the US Gas Utilities industry at 17.6x.
- Analysts expect the number of shares outstanding to grow by 5.9% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.
ONE Gas Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Sustained high capital expenditure requirements for system safety, integrity, and growth-including major projects like Austin system reinforcement-may outpace revenue increases, potentially compressing long-term free cash flow and net margins if regulatory cost recovery does not keep pace.
- The company's focus on growth opportunities within a geographically limited footprint (Texas, Oklahoma, Kansas) increases exposure to localized weather extremes (e.g., record rainfall and flooding) and regional economic/regulatory risks, which could heighten earnings volatility and limit revenue diversification.
- Rising labor and operating expenses (7.5% year-over-year O&M growth in the quarter) reflect inflationary pressures that may erode net margins over time, especially if future rate increases struggle to keep pace with cost escalation.
- Expansion and investment strategies are heavily reliant on supportive regulatory outcomes and recent legislative actions (e.g., Texas House Bill 4384); any reversal or limitation in future political/regulatory support or consumer pushback could negatively impact allowed returns and revenue growth.
- Long-term industry headwinds-including increasing electrification, policy-driven decarbonization, and possible restrictions on new natural gas hookups-may eventually dampen incremental customer growth and throughput, threatening future top-line revenue and earnings growth despite current demand trends.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $76.667 for ONE Gas based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $89.0, and the most bearish reporting a price target of just $66.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $322.7 million, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 6.8%.
- Given the current share price of $74.71, the analyst price target of $76.67 is 2.6% 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.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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