Power up with National Fuel Gas

Recent Price $63
Dividend $1.82
Yield 2.9%
P/E Ratio 15
Shares (millions) 91.7
Long-Term Debt as % of Capital 57%
52-Week Price Range $65.95 - $39.80

 

So far this year, National Fuel Gas ($63; NFG) hasn’t acted like a utility, returning 57%, good for second highest among components of our Top 15 Utilities portfolio, powered by 12-month growth of 13% in sales and 47% in per-share profits.

Of course, National Fuel Gas isn’t just a utility. In fiscal 2021 ended September, utility operations provided just 16% of operating profits. All the rest came from energy. We see value in the integrated business model, which allows for more efficient use of both investment capital (projects designed with multiple purposes) and natural resources (sharing of resources between regulated midstream units and the utility). We added the stock to the Buy and Long-Term Buy lists in the Dec. 6 issue.

A finger in every pie

National Fuel Gas operates in all three phases of the energy business.

Upstream: The company’s Seneca Resources unit produces natural gas from 1.2 million net acres of shale fields in Appalachia, most notably the rich Marcellus and Utica territories, augmented by some oil fields in California. In the September quarter, Seneca produced the equivalent of 79.6 billion cubic feet of natural gas. That production equates to 82 trillion BTUs, enough to supply the state of Delaware with natural gas for nearly a full quarter. Production rose 18% in the quarter and 36% for the year, boosted by an acquisition and organic growth. Seneca projects production growth of 7% this year.

Proved natural-gas and oil reserves rose 11% in the September quarter to 3.9 trillion cubic feet equivalent, representing 12 years’ worth of production. In fiscal 2021, National Fuel Gas replaced 221% of its production, boosting our confidence in future production growth. Earnings from upstream operations more than doubled last year and accounted for 46% of National Fuel Gas’ operating profits.

Midstream: National Fuel Gas operates a network of 3,000 miles of pipelines and 77 billion cubic feet of storage capacity. The company has invested $2.2 billion in this business since 2010 and plans more than $500 million in fresh spending over the next five years. Adjusted earnings rose 21% last year and represented 38% of the parent company’s profits. The company expects revenue from pipelines and storage to rise 8% and gathering revenue to jump 10% next year.

Downstream: The natural-gas utility serves 747,000 customers in Pennsylvania and New York. Excluding special items, utility profits fell 5% last year despite a 2% revenue gain as higher operating expenses offset gains from a rate mechanism that recoups costs for replacing some leaky pipes. Given the firm’s history of aggressive cost controls, the utility’s profit picture should improve in coming years.

Looking ahead

Last month, National Fuel Gas raised its profit-guidance range for fiscal 2022 more than 13%, projecting per-share earnings of $5.05 to $5.45, which equals growth of 18% to 27%. The company expects sharply higher gas and oil prices this year, which explains much of the guidance increase.

National Fuel Gas Co., 6363 Main St., Williamsville, NY 14221, (716) 857-7000, www.nationalfuel.com.

 

Quarter Per-Share Earnings* Sales Change Quarterly Price Range P/E Ratio
Range
Sep '21 $0.95 vs. $0.40 24% $55.05 - $49.16 15 - 13
Jun '21 0.93 vs. 0.57 22% 55.22 - 49.22 16 - 15
Mar '21 1.34 vs. 0.97 12% 51.13 - 39.80 17 - 13
Dec '20 1.06 vs. 1.01 -1% 44.05 - 37.87 15 - 13

 

Year
(Sep.)
Sales
(Bil.)
Per-Share Earnings* Per-Share
Dividend
52-Week Price Range P/E Ratio
Range
2021 $1.7 $4.29 $1.79 $55.22 - $37.87 13 - 9
2020 1.5 2.92 1.75 47.70 - 31.58 16 - 11
2019 1.7 3.45 1.71 61.71 - 45.47 18 - 13
2018 1.6 3.34 1.67 59.90 - 48.31 18 - 14

 

Quadrix Scores
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Perform-
ance
Reversion
82 78 65 61 72 55 83 62

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.