Wall Street expects EPS growth to stall for some gas utilities in Q2'21

Wall Street anticipates mixed second-quarter earnings results for gas utility operators, potentially putting a period of solid profit growth on pause for the sector.

Just four out of nine local distribution companies in a select group of gas utilities are tipped to post higher year-over-year earnings per share in the upcoming reporting period. Analysts expect just five multi-utilities in a select group of 14 companies to see EPS rise from a year ago, according to S&P Capital IQ consensus estimates.

If the predictions pan out, the results could present another reason for investors to sideline the sector. After surging about 9% in the first quarter of 2021, the select gas utility stocks posted gains of 1.7% and underperformed the broader market in the second quarter as investors' attention turned to growth stocks and the reflation trade.

Wall Street's interest waned even as first-quarter earnings extended a period of EPS growth at gas utilities and LDCs sounded upbeat at the American Gas Association's Financial Forum in May.

"Several companies described recent transaction multiples as giving validation and creditability to the gas utility business model. However, each seems content, if not excited, about their own organic growth outlooks, not wanting to overpay with hefty premiums," Scotiabank analyst Andrew Weisel said in a research note following the forum.

Sector watchers will have plenty to pore over Aug. 5. CenterPoint Energy Inc., UGI Corp., Atmos Energy Corp., New Jersey Resources Corp., Northwest Natural Holding Co., South Jersey Industries Inc., Spire Inc., Sempra and Chesapeake Utilities Corp. all pack their earnings reports into a single day. One Gas Inc. reports Aug. 3.

Mizuho Securities USA LLC analyst Gabriel Moreen will be listening for commentary that moves the ball forward on renewable natural gas investments and proposals.

Efforts to incorporate renewable natural gas, processed from methane waste sources like farms and landfills, into distribution systems have gathered steam over the past year. Recently passed legislation authorizing state regulators to approve renewable natural gas programs in Minnesota, Florida and Missouri could spur conference call commentary on future investment opportunities.

UGI highlighted its plan to invest more than $1 billion in renewable natural gas and decarbonized liquefied petroleum gas at its mid-year investor day. Another diversified gas distributor, Chesapeake Utilities, also announced a string of renewable natural gas initiatives and recently discussed the strategy with S&P Global Market Intelligence.

In April, DTE Energy Co. contemplated expanding its investments in renewable natural gas production facilities, noting it has become its niche play in its nonregulated business. During its last earnings call, South Jersey Industries said it expects to invest about half a billion dollars in renewable natural gas projects through 2025. Southwest Gas Holdings Inc. also recently highlighted its growing portfolio of renewable natural gas offtake projects.

Another area of interest will center around details on securitizing extraordinary gas purchase costs incurred during February's winter storm, particularly for hard-hit companies like Atmos and One Gas, Moreen said.

In May, Atmos and One Gas walked analysts through their progress with state regulators to date, but key questions remained on the timeline for cost recovery and the ultimate impact on customer bills.