Atmos Energy Earnings: Strong Customer Growth and Increased Rates Offset Rising Operating Expenses

We are reaffirming our $109 per share fair value estimate for Atmos ATO after it announced third-quarter fiscal-year earnings of $0.94 per share, compared with $0.92 in the same year-ago period. The company reaffirmed its 2023 full-year operating earnings guidance of $6.00 to $6.10 per share, which is consistent with our estimates. Our narrow moat remains unchanged.

The company’s long-term 6% to 8% annual earnings growth target remains unchanged. We continue to expect Atmos to achieve the high end of that range. Dividend growth should be in line with earnings growth, particularly given the company’s relatively low payout. Atmos’ 2023 dividend is up 8.8% from last year, keeping the company’s dividend growth among the highest in the utilities sector.

Earnings benefited from increased customer rates across its subsidiaries, boosting operating income by $204 million. Additionally, higher residential customer count and industrial usage contributed to earnings growth. These benefits were partially offset by higher operating expenses, which the company will need to continue to manage in the current economic environment.

On regulatory matters, Atmos has already secured $263 million in revenue increases for the year to date, with an additional $263 million in progress. We anticipate constructive outcomes across its service territories, consistent with past treatment.

Atmos has been investing in its business, allocating $2.1 billion during the first three quarters of the fiscal year, representing a 20% increase from last year. The company is on track to invest $2.8 billion this fiscal year, in line with our expectations. Looking ahead, we anticipate Atmos will invest $15 billion through 2027, at the higher end of the company’s projections. This supports our 8% average annual earnings growth forecast, among the highest in the industry.