Atmos Energy Bears The Brunt Of O&M Inflation, Analyst Projects FY24 EPS At Lower End Of 6%-8% Growth Target

Mizuho analyst Gabriel Moreen reiterated a Buy rating on Atmos Energy Corporation ATO, lowering the price target to $131 from $137.

Moreen lowered the target multiple in the model valuation to 19.0x (from 20.0x) to reflect industry headwinds.

The analyst says the EPS estimate for FY24 of $6.42/share (down $0.01/share) implies 6.1% growth off of the midpoint of FY23 guidance of $6.05/share.

Moreen thinks this year-over-year growth would fall on the lower end of ATO's 6%-8% growth rate target. 

The analyst views this primarily as a function of sustained exogenous headwinds, particularly O&M inflation.

Management has echoed these expectations in earnings updates, the analyst adds. They pointed to the rising cost of third-party services such as line locates and a rise in costs commensurate with ATO's growing footprint.

Moreen anticipates an O&M inflation rate of 4.4% in FY24 before returning to a longer-term run-rate within ATO's target of 3.0-3.5% in subsequent years, but this is a deceleration from the nearly 14% ATO has experienced year-to-date.

The analyst's FY23 estimate (and ATO's guidance midpoint) of $6.05/share implies 8.1% growth off of FY22 EPS, which is at the high end of the guidance range, making the relative comp more challenging for FY24. 

Price Action: ATO shares are trading higher by 0.70% to $111.58 on the last check Wednesday. 

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