Morningstar | Atmos' Five-Year Capital Expenditures Accelerate Faster Than We Anticipated
We are increasing our fair value estimate to $92 per share from $87 after Atmos Energy held its annual analyst day during which management accelerated its five-year capital investment program. The updated plan anticipates total capital expenditures of $9 billion-$10 billion over 2019-23, up from the previous five-year plan of $8 billion. Following the February 2018 Dallas pipeline explosion, we had increased our estimate of capital expenditures to $500 million higher than Atmos' $8 billion guidance. Thus, the new guidance accelerates investment to a higher annual rate than we had anticipated.We increased our five-year capital expenditure assumption to $10 billion, the top end of Atmos' guidance. The new capital expenditure plan would result in compound annual rate base growth of 12.4% per year over the next five years compared with our previous estimate of 12.2%. The increase in rate base drives earnings growth and is the primary driver for the increase in our fair value estimate.
We initiated a 2023 EPS estimate of $5.60, the midpoint of Atmos’ guidance of $5.40-$5.80. This would result in a 7% compound annual EPS growth rate off the fiscal 2018 adjusted earnings of $4.00. 2018 adjusted earnings exclude a $1.43 per share nonrecurring benefit from the 2017 Tax Cuts and Jobs Act. Our 7% annual EPS growth rate is also at the midpoint of Atmos’ 6%-8% guidance.
On Nov. 7, Atmos’ board increased the annual dividend by 8.2% to an annualized rate of $2.10 per share. The increase was higher than our estimate of 7.8% and above management’s target of 6%-8% per year. We have increased our five-year dividend growth assumption to the top end of management’s target, or 8% per year, versus our previous assumption of 7.6% per year. 2019 marks the 35th consecutive year that Atmos has increased its dividend.
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Atmos Energy is engaged in the regulated natural gas distribution and pipeline and storage businesses. The company delivers natural gas through regulated sales and transportation arrangements to residential, commercial, public-authority and industrial customers. The company's segments are: Distribution, which is comprised of its regulated natural gas distribution and related sales operations; and Pipeline and Storage, which consists of the pipeline and storage operations of its Atmos Pipeline-Texas Division (APT) and its natural gas transmission operations in Louisiana. APT has intrastate pipeline operations in Texas with a focus on the natural gas-producing areas of central, northern and eastern Texas.
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