Valuation Scorecard: Stock Rating C-Low Neutral (4/1/24)-Atmos Energy Corp (ATO).

Atmos Energy’s common shares will need to reach $198 to achieve average annual stock market performance of 9.0% over the next 6 years. Atmos Energy’s stock price will need to reach $233 by 2029 to achieve upper quartile performance. What is the market’s view of Atmos Energy’s future operating performance as reflected in the current price of $118?

Executive Summary

• Atmos Energy’s important characteristics: high financial strength, low profitability, low stability, and very low expected growth. A big positive influence on Atmos Energy’s valuation is its superior Growth.
• Average valuation, leading shareholder returns. Current valuation levels are average relative to the Atmos Energy Peer Group. Recent market returns have significantly outperformed the Atmos Energy Peer Group. Total shareholder returns expected to seriously lag the overall equity market. Based on current investor expectations, Atmos Energy shares should reach a level of $151 by 2029 — an 6.7% per year total shareholder return. A 2029 stock price of $198 would reflect median performance and a price of $233 would be required to reach upper quartile performance.
• Growth has been Atmos Energy’s biggest valuation strength. Historical growth has been very high relative to the Atmos Energy Peer Group and forecasted growth is relatively very low. Asset Growth, Equity Growth, and EPS Growth have been superior. These factors have buoyed market perceptions of Atmos Energy. Atmos Energy’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable. Atmos Energy’s consensus growth expectations are in line with past growth.
• Pretax ROA, and Pretax Margin are group leading. Asset Turnover is group lagging. The company has below average cash and will have to work to generate attractive investment opportunities and improve valuation.
• Atmos Energy’s risk profile is neutral. Overall variability has been only average with only average revenue variability, very high E.P.S. variability, and very high stock price volatility. Financial Strength is relatively very high and earnings’ expectations are very low. The debt/capital ratio has declined very significantly.

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