AGL Resources Cut to Underperform - Analyst Blog
February 13 2013 - 11:40AM
Zacks
On Feb 7, 2013, we downgraded
energy services holding company AGL Resources Inc.
(GAS) to Underperform from Neutral, considering its weak
fundamentals and tepid outlook. The disappointing fourth quarter
results and a number of other challenges have added to this
bearishness, which is supported by a Zacks Rank #5 (Strong
Sell).
Why the Downgrade?
AGL Resources recently reported lower-than-expected EPS for the
December quarter – 91 cents versus the Zacks Consensus Estimate of
$1.01 – affected by higher operating expenses.
We expect shareholder sentiment toward the company to remain
lukewarm, considering its investment in higher-risk unregulated
operations and the uncertain economic environment.
Causes for Concern
The outlook for AGL Resources’ wholesale segment continues to be
less than favorable. We believe that margins in this unit will be
under pressure, based on narrow spreads for transportation and
storage.
During the next few quarters, AGL Resources’ shipping segment
results may also remain weak. The absence of a strong economic
recovery in the U.S. continues to have a negative impact on tourism
and the economies in Tropical Shipping’s service territories
(particularly in the Bahamas and the Caribbean).
Natural gas distribution is usually a temperature-sensitive
business with about half of all deliveries used for space heating.
Usually, almost 75% of the deliveries and sales occur during the
six-month period of October through March. Consequently,
milder-than-normal weather conditions in the future could adversely
effect AGL Resources’ operating results, cash flow and financial
condition.
Stocks That Warrant a Look
While we expect AGL Resources to perform below its peers and
industry levels in the coming months and see little reason for
investors to own the stock, one can look at Atmos Energy
Corp. (ATO), Centrica plc (CPYYY) and
Clean Energy Fuels Corp. (CLNE) as good buying
opportunities. These natural gas distributors – sporting a Zacks
Rank #2 (Buy) – have solid secular growth stories with potential to
rise from current levels.
ATMOS ENERGY CP (ATO): Free Stock Analysis Report
CLEAN EGY FUELS (CLNE): Free Stock Analysis Report
(CPYYY): ETF Research Reports
AGL RESOURCES (GAS): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Clean Energy Fuels (NASDAQ:CLNE)
Historical Stock Chart
From Jun 2024 to Jul 2024
Clean Energy Fuels (NASDAQ:CLNE)
Historical Stock Chart
From Jul 2023 to Jul 2024