ATO - Atmos Energy: Slow And Steady Can Win The Race

2024-04-02 07:59:17 ET

Summary

• Atmos Energy shares have gained about 6% in the past year, underperforming the market due to concerns about rising rates and competition from fixed-income options.
• The company's Q1 earnings were slightly lower than expected due to mild weather, but long-term weather-related variances are less meaningful than operationally-driven ones.
• Atmos continues to invest in growing its rate base, earning a blended 9.8% return on equity, and has favorable geographic positioning in Texas for natural customer growth opportunities.

Shares of Atmos Energy ( ATO ) have been a mediocre performer over the past year, gaining about 6% even as the market has rallied strongly. This is partly due to the fear that rising rates could make utility funding costs more onerous; additionally, dividend stocks are less attractive in a higher-rate world with fixed-income options providing competition for investment. In November , I recommended shares as a "buy," arguing it could generate long-term ~10% returns for investors. Since then, shares have returned about 6.7% while the S&P is up nearly 20%. Ultimately, Atmos is not the type of stock that can keep up with such a blistering bull market, but I do continue to see it poised to generate ~10% long-term returns. As with the tortoise and the hare fable, slow and steady can win the race, and I view ATO as such a stock for long-term investors....

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