Market Overview

Strong Outlook, Pullback On Shares Lead Janney To Upgrade RGC Resources

Strong Outlook, Pullback On Shares Lead Janney To Upgrade RGC Resources
Related RGCO
Mid-Day Market Update: NASDAQ Down Over 100 Points; ProQR Therapeutics Shares Surge
Mid-Afternoon Market Update: Intellia Therapeutics Slides Following Q4 Results; Arcadia Biosciences Shares Surge

RGC Resources Inc. (NASDAQ: RGCO) reported fiscal 2018 first-quarter results Monday that were hurt by charges tied to U.S. tax legislation. 

The Analyst

Janney analyst Michael Gaugler upgraded RGC Resources from Neutral to Buy and lowered the fair value estimate from $29 to $27.

The Thesis

If not for the tax-related charges. RGC Resources' earnings would have exceeded estimates, Gaugler said in a Tuesday note. (See the analyst's track record here.) 

The uptick in the interest rate on the 10-year treasury note from a recent low of 2.06 percent in September to 2.85 percent Friday has severely impacted utilities, the analyst said. 

"Additional anticipated higher U.S. Treasury borrowing will likely pressure rates for the foreseeable future, making it difficult to forecast where 10-year rates will ultimately top out," he said. 

Long-term earnings growth through increased capital spending allows utilities to raise dividends over time — offsetting the negative impact of rising rates somewhat, Gaugler said. 

RGC Resources has "ample" room to raise dividends and has a track record of doing so, the analyst said. 

The pausing of the Mountain Valley Pipeline construction at a federal judge's direction may also have contributed to a pullback in RGC stock, Gaugler said. 

The headwinds pushing against RGC Resource's share price appear to be manageable over time, the analyst said. Janney expects RGC's robust capex to drive strong earnings growth and therefore dividends.

"With the shares trading approximately 30-percent off their recent highs, we believe this is a good entrance point for patient investors looking for long-term growth and income." 

Price Action

The shares of RGC Resources are up about 5 percent over the past year.

Shares were up 7.47 percent at $24.02 at the time of publication Tuesday afternoon. 

Related Links:

A Contrarian Dividend Idea

Goldman Sachs' 3 Top Utilities Stocks In 2018

Latest Ratings for RGCO

Jun 2018Janney CapitalDowngradesBuyNeutral
Apr 2018Seaport GlobalInitiates Coverage OnNeutral
Feb 2018Janney CapitalUpgradesNeutralBuy

View More Analyst Ratings for RGCO
View the Latest Analyst Ratings

Posted-In: Janney Michael Gaugler Natural Gas UtilitiesAnalyst Color Upgrades Price Target Analyst Ratings


Related Articles (RGCO)

View Comments and Join the Discussion!

Latest Ratings

CPAImperial CapitalDowngrades68.0
PRMWImperial CapitalInitiates Coverage On18.0
TGTKeyBancInitiates Coverage On110.0
QCOMMorgan StanleyUpgrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Benzinga Expanding Cryptocurrency, Blockchain And Crypto ETF Coverage To Meet Institutional Demand

Vetr Crowd Upgrades Wells Fargo To Sell