Today we're going to take a closer look at mid-cap Utilities company National Fuel Gas Company, whose shares are currently trading at $53.91. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
National Fuel Gas Company Is Fairly Priced at Current Levels:
National Fuel Gas Company operates as a diversified energy company. The company belongs to the Utilities sector, which has an average price to earnings (P/E) ratio of 22.89 and an average price to book (P/B) ratio of 1.03. In contrast, National Fuel Gas Company has a trailing 12 month P/E ratio of 10.4 and a P/B ratio of 1.67.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. National Fuel Gas Company's PEG ratio is 1.0, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $1,593 | $1,693 | $1,546 | $1,743 | $2,186 | $2,128 |
| Gross Margins | 31% | 30% | 2% | 34% | 37% | 36% |
| Operating Margins | 33.0% | 30.0% | 2.0% | 37.0% | 37.0% | 36.0% |
| Net Margins | 25.0% | 18.0% | -8.0% | 21.0% | 26.0% | 25.0% |
| Net Income (MM) | $392 | $304 | -$124 | $364 | $566 | $524 |
| Net Interest Expense (MM) | $4 | $5 | $7 | $5 | $10 | $16 |
| Depreciation & Amort. (MM) | $241 | $276 | $306 | $335 | $370 | $386 |
| Earnings Per Share | $4.53 | $3.51 | -$1.41 | $3.97 | $6.15 | $5.69 |
| Diluted Shares (MM) | 86 | 87 | 88 | 92 | 92 | 92 |
| Free Cash Flow (MM) | $30 | -$94 | $25 | $40 | $1 | $267 |
| Capital Expenditures (MM) | $584 | $789 | $716 | $752 | $812 | $947 |
| Net Current Assets (MM) | -$1,485 | -$1,955 | -$2,411 | -$2,283 | -$2,641 | -$2,380 |
| Long Term Debt (MM) | $2,132 | $2,134 | $2,130 | $2,630 | $2,084 | $2,384 |
| Net Debt / EBITDA | 2.66 | 2.84 | 7.58 | 3.33 | 2.43 | 2.22 |
National Fuel Gas Company has growing revenues and increasing reinvestment in the business and wider gross margins than its peer group. Additionally, the company's financial statements display decent operating margins with a stable trend and positive EPS growth. However, the firm has a highly leveraged balance sheet. Finally, we note that National Fuel Gas Company has irregular cash flows.
