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JPMorgan On Gas Utilities: Atmos Remains Undervalued, Nisource Downgraded

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March 29, 2016 12:56 pm
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JPMorgan issued an industry note on gas utilities noting that premium multiples have made valuations relatively high, limiting the opportunity to earn significant returns. In the report, analysts did highlight Atmos Energy Corporation (NYSE: ATO) as a value opportunity while reiterating their underweight rating of Laclede Group Inc. (NYSE: LG) and downgrading NiSource Inc. (NYSE: NI).

Analyst Christopher Turnure wrote, "LDC valuations are at historical highs and generally appear expensive versus regulated electric peers despite superior growth potential…Based on 5-year organic growth and no change in relative valuation we see a best case total return of 8.5 percent, 7.9 percent, and 6.0 percent for ATO, NI and LG respectively but see only ATO as offering relative and absolute value in a group multiple contraction scenario."

Analysts at JPMorgan gave one key reason why they believe that Atmos Energy remains undervalued: Growth opportunities.

JPMorgan noted that Atmos is implementing an accelerated capital spending plan that has the potential to offer investors above average returns on investment. Analysts believe Atmos is investing for future growth opportunities have the potential to drive revenue and profit margins.

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