ONE Gas: Robust Growth And Capital Return Outlook
Stock Analysis & Ideas

ONE Gas: Robust Growth And Capital Return Outlook

Oklahoma-based ONE Gas, Inc. (OGS) is one of the largest publicly traded natural gas utilities in the country. The company provides natural gas distribution services to more than 2.2 million customers.

Specifically, ONE Gas is the largest natural gas distributor in Oklahoma and Kansas and the third-largest in Texas, with market shares of 88%, 72%, and 13%, respectively. The company’s customer base includes residential, commercial, and transportation-related customers in all three states.

ONE Gas’ investment case is quite enticing, as the company appears to be enjoying robust earnings and healthy dividend growth visibility prospects ahead. Combining these factors with my view that shares are reasonably valued, I am bullish on the stock.

Recent Performance

ONE Gas’ latest results came in quite strong, with quarterly revenues reaching $593.74 million, an increase of 22.6% year-over-year. Demand for natural gas lingered high, which combined with customer growth, and new, increased rates led to impressive results.

Operating income was $87.0 million compared to $85.0 million last year, driven by a $9.5 million increase from rates, mainly in Texas and Oklahoma, a $5.6 million decline in bad debt expense, and a $1.8 million boost related to net residential customer growth.

Consequently, earnings per share (EPS) came in modestly higher, rising from $1.09 to $1.12 year-over-year. The company expects its ongoing positive momentum to endure through 2022 and expects EPS for the year to be land between $3.96 and $4.20.

Growth Visibility

ONE Gas has managed to grow its net income annually at a very stable pace and without any disruptions. This is due to establishing its customer base, the demand for natural gas growing year after year, and the usual base rate increases approved by regulators.

Management expects base rate increases between 7% and 8% through 2025, while additional investments and buyouts of smaller competitors are also likely to boost EPS growth during this period. In fact, management itself anticipates EPS growth between 6% and 8% over the next four years.

Following such a precise EPS growth outlook, management has made transparent that it targets dividends per share growth (DPS) between 6% and 8% through 2025 as well.

Hence, investors have a very clear image of how the company’s EPS & DPS trajectories are likely to evolve in the coming years.

Wall Street’s Take

Turning to Wall Street, ONE Gas has a Moderate Buy consensus rating, based on two Buys and one Hold assigned in the past three months.

At $82.33, the average ONE Gas stock projections imply 0.21% downside potential, nonetheless.


ONE Gas is a quality operator amongst natural gas utilities that has recorded exceptional growth over the past few years. I am particularly keen on the company’s resilient cash flows, and its clear pathway for growth ahead both when it comes to its profit and capital return outlook.

Based on the midpoint of management’s EPS guidance, the stock is currently trading at a forward P/E of around 21.05. While this is not a cheap multiple for a company in this sector, I believe that it’s a fair one considering the lack of major uncertainty regarding ONE Gas’ medium-term performance.

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