Infrastructure build out becomes the key story for Atmos Energy

Atmos Energy (ATO) is ramping up its infrastructure program, with US$3.6b allocated in fiscal 2025 and a planned US$4.2b in 2026, supported by lower interest rates that ease financing costs.

The stock’s recent move appears to reflect investors reacting to this heavier infrastructure spend, with a 7.17% 1 month share price return and a 28.61% 1 year total shareholder return suggesting momentum has been building rather than fading.

If this infrastructure story has your attention, it may be a good time to see what else is on the grid, including 23 power grid technology and infrastructure stocks that may benefit from similar spending themes.

With Atmos Energy trading at US$188.58, a value score of 2, an implied intrinsic discount figure, and a price slightly above the US$182.50 analyst target, investors may wonder whether there is still an opportunity or if the market is already pricing in future growth.

Most Popular Narrative: 4.2% Overvalued

With Atmos Energy at $188.58 against a narrative fair value of $180.90, the story rests on steady growth, firm margins and a relatively rich future earnings multiple.

Major multiyear capital investment programs focused on modernizing and expanding pipeline infrastructure, combined with favorable regulatory mechanisms and frequent rate filings, underpin ongoing rate base growth, translating to stable and predictable long-term earnings and cash flow.

Curious how this heavy build program can still support a premium earnings multiple? Revenue growth, margin assumptions and the chosen discount rate all quietly carry the load.

Result: Fair Value of $180.90 (OVERVALUED)

However, those assumptions can be challenged if rising capital and operating costs squeeze margins or if regulatory support in key states becomes less constructive.

Another View: DCF Paints a Very Different Picture

The earlier narrative-based fair value of $180.90 implies Atmos Energy is 4.2% overvalued at $188.58. Our DCF model tells a different story, putting future cash flow value at $914.25 per share, which is a very large gap. So which signal should be given more weight: sentiment or cash flows?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Atmos Energy for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 48 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of confidence and caution has you thinking hard about Atmos Energy, it is worth reviewing the full data set now and forming your own view, including 3 key rewards and 2 important warning signs.

Ready to uncover more investment ideas?

If Atmos Energy has sharpened your thinking, do not stop here. Broaden your watchlist now so you are not the one hearing about the best ideas secondhand.

• Zero in on quality at a discount by scanning our 48 high quality undervalued stocks that highlight companies with strong fundamentals priced below their implied worth.
• Lock in potential income streams by reviewing 14 dividend fortresses that focus on companies offering higher yields with an eye on stability.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.