Atmos Energy Corporation’s (ATO Quick QuoteATO - Free Report) strategic investment plans are expected to help increase the safety and reliability of its natural gas pipelines. The company gains from industrial customer additions and constructive rate outcomes. ATO’s steady performance has enabled it to reward shareholders through consistent hikes in its annual dividend rate.

However, this currently Zacks Rank #3 (Hold) company faces strong competition from other clean alternative fuel suppliers.

Tailwinds

Atmos Energy has a sturdy capital expenditure plan, which helps the company in increasing the safety and reliability of its natural gas pipelines. A major portion of ATO’s planned capital expenditure is utilized to improve the safety and reliability of its distribution and transportation systems. The company invested $2.8 billion in fiscal 2023, 85% of which was allocated to its safety and reliability. Atmos Energy expects $2.9 billion in capital expenditures during fiscal 2024.

Courtesy of constructive regulatory mechanism, more than 90% of the company’s annual capital investments start earning returns within six months and nearly 99% within no more than 12 months.

Atmos Energy gains from industrial customer additions and constructive rate outcomes. The industrial customer base expansion boosted its operating income. ATO added 11 new industrial customers, which when fully operational, will consume approximately 2.5 Bcf of gas annually. This amount is volumetrically equivalent to 45,000 residential customers. Commercial customer growth remained solid with more than 1,000 commercial customers connecting to the system during the fiscal first quarter.

Headwinds

Courtesy of regulated operations, ATO does not face direct competition from any other residential and commercial distributor of natural gas within its service areas. However, the company has to compete with other suppliers of natural gas and alternative fuels for sales to industrial customers.

In addition, the company has to compete with energy products like electricity and propan, which are used for space and water heating, and in the cooking market.

Stocks to Consider

Some better-ranked stocks from the same sector are MDU Resources (MDU Quick QuoteMDU - Free Report) , NiSource Inc. (NI Quick QuoteNI - Free Report) and IDACORP (IDA Quick QuoteIDA - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MDU Resources’ long-term (three to five year) earnings growth rate is 6%. The Zacks Consensus Estimate for MDU’s 2024 earnings per share (EPS) indicates a decrease of 0.7% year over year.

NiSource’s long-term earnings growth rate is 7.15%. The Zacks Consensus Estimate for NI’s 2024 EPS indicates an increase of 6.9% year over year.

IDA’s long-term earnings growth rate is 4.38%. The Zacks Consensus Estimate for IDA’s 2024 EPS implies a year-over-year improvement of 5.6%.