Why Did BofA Upgrade One Gas and Atmos Energy?

Natural gas utilities were trading at a discount of between 5% and 10% versus their electric peers in the first half of 2021 and declined to a discount of between 15% and 20% in the second half.

Gas prices “returning to some normalcy” are likely to lend upside to stocks of gas utilities, according to BofA Securities.

The Gas Utilities Analyst: Julien Dumoulin-Smith upgraded the rating for Atmos Energy Corporation ATO from Neutral to Buy, while raising the price target from $100 to $107. The analyst also upgraded the rating for One Gas Inc OGS from Underperform to Neutral, while raising the price target from $65 to $78.

The Gas Utilities Analyst: While spot gas prices have recently risen meaningfully, gas utilities have not re-rated versus their electric peers, Dumoulin-Smith said in the upgrade note.

“We see ATO and OGS as the main beneficiaries of a return to capital in the space, and we have started to see capital return to OGS following the recent de-risking while ATO has yet to see a full rebound to historic premiums despite a very constructive year-end update highlighting industry-leading regulated earnings growth,” the analyst wrote.

“ATO currently trades at a slight discount to OGS despite stronger earnings growth and similar regulatory constructs,” she added.

Price Actions: As of Wednesday morning, Atmos Energy is up 0.34% at $97.48 and One Gas is up 1.21% at $73.56.

Photo: Courtesy Atmos Energy