Atmos Energy Corporation ATO, with its widespread transmission and distribution lines, interstate pipelines and significant investments in infrastructure development projects, is poised to benefit from the expected increase in natural gas consumption. Steady investments and expanding infrastructure in crucial production regions should drive the performance of Spire Inc. SR and Northwest Natural Holding Company NWN.
About the Industry
The shale revolution has significantly boosted natural gas production. Owing to its relatively clean-burning properties, natural gas demand has steadily increased across all customer segments. Distribution pipelines play a crucial role in transporting natural gas from intrastate and interstate transmission systems to end users through smaller-diameter pipelines. The United States holds about 3,353 trillion cubic feet of natural gas resources and relies on a vast pipeline network of nearly 2.5 million miles to deliver gas to consumers. Yet, the industry faces challenges such as aging infrastructure and rising capital requirements for upgrading and maintaining the extensive pipeline network, particularly amid higher interest rates. Competition from other clean energy sources can reduce natural gas demand and, in turn, affect pipeline utilization.
3 Key Trends Reshaping the Gas Distribution Industry
Aging Infrastructure Creates Challenges in Operations : The U.S. natural gas distribution sector continues to face challenges from aging infrastructure, with many pipelines nearing the end of their service life. Despite ongoing upgrades and network expansion, vast stretches of pipelines still require maintenance, raising concerns over safety, methane emissions and system reliability. Pipeline leaks can lead to service interruptions, pose safety risks and drive up maintenance expenses.
Increasing Competition From Other Clean Sources : Natural gas faces increasing competition from other clean energy sources. Advances in technology have significantly lowered the cost of developing utility-scale renewable energy projects. At the same time, battery storage systems are helping overcome the intermittency of renewables, enabling a reliable 24/7 supply of clean power. As renewable energy becomes more cost-effective and on-site generation reduces dependence on long-distance gas pipelines, investments in new pipeline infrastructure are facing growing economic risks.
Interest Rate Decline Is a Tailwind : Capital-intensive utilities often depend on capital markets to fund maintenance, upgrades and expansion, as internal cash flows are at times insufficient to support long-term projects. The U.S. Federal Reserve has reduced its benchmark interest rate by 175 basis points from the peak range of 5.25-5.50% to 3.50-3.75%, with further rate cuts expected in 2026. Lower borrowing costs are advantageous for domestically focused utilities, making the decline in interest rates a positive factor for companies planning large-scale infrastructure investments.
Zacks Industry Rank Indicates Bleak Near-Term Prospects
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. The Zacks Utility Gas Distribution industry — a 13-stock group within the broader Zacks Utilities sector — currently carries a Zacks Industry Rank #155, which places it in the bottom 36% of the 243 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate.
Before we present a few Gas Distribution stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and valuation picture.
Gas Distribution Industry Lags the Sector but Beats the S&P 500
The Gas Distribution industry has outperformed the Zacks S&P 500 composite but lagged its sector over the past year. The stocks in this industry have gained 24.5% in the said time frame compared with the Utility sector’s growth of 27.5%. The Zacks S&P 500 composite has gained 24.4% in the same time frame.
Price Performance (One Year)
Gas Distribution Industry Trading at a Discount
Since utility companies have a lot of debt on their balance sheets, the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio is commonly used to value them.
The industry is trading at a trailing 12-month EV/EBITDA of 12.8X compared with the Zacks S&P 500 composite’s 17.73X and the sector’s 14.86X.
Over the past five years, the industry has traded at a high of 15.71X and a low of 9.73X, with a median of 11.86X.
Utility Gas Industry vs. S&P 500 (Past Five Years)
Utility Gas Industry vs. Sector (Past Five Years)
3 Gas Distribution Stocks to Watch Amid Weakness
Atmos Energy and NW Natural Holdings currently carry a Zacks Rank #2 (Buy) each, while Spire currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Atmos Energy: This Dallas, TX-based company is engaged in the regulated natural gas distribution and storage business. Atmos Energy invested $3.6 billion in fiscal 2025 and plans to invest $4.2 billion in fiscal 2026 to strengthen its infrastructure further and efficiently serve more customers. The company continues to replace old pipelines and provide reliable services to its expanding customer base.
The current dividend yield of 2.16% is better than the Zacks S&P 500 composite’s 1.42%. Long-term (three to five years) earnings growth is currently pegged at 7.01%. The Zacks Consensus Estimate for ATO’s fiscal 2026 and 2027 earnings per share indicates year-over-year growth of 10.19% and 6.49%, respectively.
Price and Consensus: ATO
NW Natural Holdings: This Portland, OR-based company provides regulated natural gas distribution services to residential, commercial and industrial customers in the United States. NW Natural Holdings also provides water and wastewater services to its customers. The company provides services to more than 1 million customers in seven states. NW Natural Holdings capital expenditures for 2026 are expected to be in the range of $500 million to $550 million and for the five-year period from 2026 to 2030 are expected to range from $2.6 billion to $2.9 billion.
Its current dividend yield is 3.77%. The Zacks Consensus Estimate for NWN’s 2026 and 2027 earnings per share implies year-over-year growth of 4.1% and 5.25%, respectively.
Price and Consensus: NWN
Spire Inc.: This St. Louis, MO-based natural gas company continues to expand business organically via making systematic investments to expand infrastructure and advance through innovation. Spire expects its 10-year capital investment to be $11.2 billion through fiscal 2035.
Its current dividend yield is 3.59%. Long-term earnings growth is currently pegged at 12%. The Zacks Consensus Estimate for SR’s fiscal 2026 and 2027 earnings indicates year-over-year growth of 15.77% and 11.54%, respectively.
Price and Consensus: SR
Radical New Technology Could Hand Investors Huge Gains
Quantum Computing is the next technological revolution, and it could be even more advanced than AI.
While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.
Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power .
Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.
See Top Quantum Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Atmos Energy Corporation (ATO): Free Stock Analysis Report
Northwest Natural Gas Company (NWN): Free Stock Analysis Report
Spire Inc. (SR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).