Atmos Energy Earnings: Rate Increases, Management Execution, and Customer Growth Drive Earnings

We are reaffirming our $106 per share fair value estimate after Atmos Energy ATO reported second-quarter fiscal 2023 earnings per share of $2.48, compared with $2.37 in the same year-ago period. The company narrowed its 2023 full-year operating EPS guidance to $6.00 to $6.10, up from $5.90 to $6.10. The narrowed range is consistent with our current $6.03 EPS estimate.

Atmos Energy trades at a 10% premium to our fair value estimate as of May 4, after rallying 19% from its low reached last October.

The company’s long-term 6% to 8% earnings growth target remains unchanged. We expect the company to achieve the high end of that range. We expect future dividend growth will be higher than our earnings growth estimate given the company’s relatively low payout. Atmos’ 2023 dividend is nearly 9% higher than last year and Atmos’ dividend growth continues to be among the highest of its utility peers.

Earnings benefited from higher customer rates across its subsidiaries. The company continues to receive constructive outcomes throughout its subsidiaries during its normal busy regulatory calendar. The company has secured $116 million in annual rate increases thus far, and we have confidence that management will receive approval for most of the remaining $298 million in outstanding requests. Earnings also benefited from favorable weather, strong customer growth, and cost control.

Atmos invested $1.4 billion in the first half of the fiscal year, putting the company on track to invest $2.7 billion for the fiscal year, in line with our expectations. Our expectation for the company to invest $15 billion through 2027 is at the high end of the company’s expectation and drives our 8% earnings growth forecast, which remains among the industry’s highest growth rate.