Over recent years, artificial intelligence (AI) has emerged as a game-changer across industries, driving innovation at an unprecedented pace. With the world leaning on AI technologies, data center demand is soaring to keep pace with technological strides and meet evolving needs. Goldman Sachs (GS) predicts data center power demand to expand at a 15% compound annual growth rate from 2023 to 2030 in the U.S.
As electricity demand surges due to skyrocketing data center needs, natural gas fuels the AI-driven infrastructure behind the scenes, which is vital for powering operations. According to Goldman Sachs, natural gas is expected to meet 60% of the new electricity demand stemming from data centers.
With natural gas prices (NGM24) rising and demand set to skyrocket, the investment bank highlights three natural gas stocks that investors might consider now.
Natural Gas Stock #1: The Williams Companies
The Williams Companies, Inc. (WMB), headquartered in Tulsa, is an energy infrastructure firm operating through several segments. Valued at a market cap of roughly $48.2 billion, the company owns and operates 33,000 miles of pipelines.
Shares of Williams have surged 35.9% over the past 52 weeks, outperforming the broader S&P 500 Energy Sector SPDR’s (XLE) 18.2% gains over the same time frame.
Boasting a track record of quarterly distributions since 1974, the natural gas company remains dedicated to rewarding its shareholders with dividends. On April 30, Williams declared a quarterly dividend of $0.4750 per share, payable to its shareholders on June 24. The company’s annualized dividend of $1.90 translates to a highly appealing 4.8% dividend yield.
In terms of valuation, the stock is trading at 21.46 times forward earnings, in line with its own five-year average.
On May 6, Williams reported its Q1 earnings results, surpassing Wall Street’s expectations on both the top and bottom lines. The company’s revenue of $2.8 billion exceeded Wall Street expectations by 3.1%, while its adjusted EPS of $0.59 rose 5.4% annually, topping estimates by a notable 20.4%.
During the quarter, adjusted EBITDA jumped 7.7% year over year to $1.9 billion, fueled by exceptional performance in its transmission, storage, and gathering businesses. Plus, Williams achieved a new milestone with a contracted transmission capacity of 33.9 billion cubic feet per day (Bcf/d), marking a 4.3% annual increase.
For 2024, management anticipates adjusted EBITDA to hit the upper rail of its guidance range of $6.8 billion and $7.1 billion, while capital expenditure is projected to range between $1.5 billion and $1.8 billion.
Analysts tracking Williams expect the company’s profit to reach $1.84 per share in fiscal 2024 and grow approximately 9.8% to $2.02 per share in fiscal 2025.
Williams stock has a consensus “Moderate Buy” rating overall. Out of the 22 analysts covering the stock, seven recommend a “Strong Buy,” two advise a “Moderate Buy,” 12 suggest “Hold,” and the remaining one gives a “Strong Sell” rating.
The average analyst price target of $39.90 indicates a marginal upside potential from current price levels. However, the Street-high price target of $47 suggests that the stock could rally as much as 18.6%.
Natural Gas Stock #2: Kinder Morgan
With a market cap of over $42.1 billion, Texas-based Kinder Morgan, Inc. (KMI) is an energy infrastructure entity, operating across various segments such as Natural Gas Pipelines; Products Pipelines; Terminals; and CO2. It owns and manages a network of about 82,000 miles of pipelines and 139 terminals.
Shares of Kinder Morgan have climbed 13.6% over the past 52 weeks and 8.2% on a YTD basis.
For Q1, the company authorized a dividend of $0.2875 per share, payable to its shareholders on May 15. This represents 2% year-over-year growth. The company’s annualized dividend of $1.15 translates to an attractive 6.03% dividend yield.
In terms of valuation, the stock is trading at 15.73 times forward earnings, lower than its five-year average of 16.43x. Moreover, the stock is priced at 2.72 times sales, in line with its five-year average.
On April 17, the company reported Q1 earnings results, which topped Wall Street's bottom-line estimates. The company’s revenue reached $3.8 billion, while its adjusted EPS of $0.34 rose 13.3% annually, exceeding analysts’ forecasts by 3%. Moreover, adjusted EBITDA improved by 7.1% year over year to $2.1 billion.
CEO Kim Dang highlighted the strong start to the quarter, citing increased financial contributions from the Natural Gas Pipelines, Products Pipelines, and Terminals business segments. Looking ahead, Dang expressed optimism for the Natural Gas Pipelines business segment, anticipating substantial demand growth driven by factors such as increased LNG exports and new demand for electric generation.
For 2024, management foresees the company’s net income reaching $2.7 billion, or $1.22 per share, up 15% annually. Its adjusted EBITDA is expected to surge 8% annually to $8.16 billion.
Analysts tracking Kinder Morgan expect the company’s profit to reach $1.18 per share in fiscal 2024, up 10.3% year over year, and grow another 3.4% to $1.22 per share in fiscal 2025.
Kinder Morgan stock has a consensus “Moderate Buy” rating overall. Out of the 19 analysts covering the stock, five recommend a “Strong Buy,” one advises a “Moderate Buy,” 12 suggest “Hold,” and the remaining one gives a “Moderate Sell” rating.
The average analyst price target of $20.38 indicates a potential upside of 6.8% from current price levels. However, the Street-high price target of $23 suggests a notable 20.5% upside potential.
Natural Gas Stock #3: EQT Corp
Pittsburgh-headquartered EQT Corporation (EQT) is a natural gas producer predominantly within the U.S. Its operations involve the sale of natural gas and natural gas liquids to marketers, utilities, and industrial clients via pipelines situated in the Appalachian Basin. The company’s market cap currently stands at $17.6 billion.
Shares of EQT have surged 20.9% over the past 52 weeks, outshining the XLE’s gains during the same time frame.
On April 17, the company declared a dividend of $0.1575 per share, payable to its shareholders on June 1. Its annualized dividend of $0.63 translates to a 1.57% dividend yield. The company maintains a healthy dividend payout ratio of 38.9%, which suggests that the company can sustain and potentially increase its dividend payments in the future.
Priced at 2.59 times sales, the stock trades at a discount to its peers like Permian Resources Corp (PR).
Despite falling short of Wall Street's revenue projections, EQT Corporation's Q1 earnings report on April 23 was well-received by investors. As a result, the company's shares surged by nearly 3.8% in the following trading session. This positive reaction can be attributed to EQT Corporation's adjusted EPS of $0.82, which surpassed analysts' estimates by an impressive 26.2%.
In Q1, the company’s game-changing acquisition of Equitrans Midstream is anticipated to form America's premier integrated natural gas powerhouse, primed to meet the surging demand for data centers and AI. EQT's clean, dependable gas will be crucial in powering global growth.
For 2024, management expects its total sales volume to range between 2,100 Bcfe and 2,200 Bcfe, while its maintenance capital expenditures is projected to be between $1.95 billion and $2.05 billion.
Analysts tracking EQT expect the company’s profit to reach $1.03 per share in fiscal 2024 and surge a whopping 266% to $3.77 per share in fiscal 2025.
EQT stock has a consensus “Moderate Buy” rating. Out of the 22 analysts covering the stock, 11 recommend a “Strong Buy,” one advises a “Moderate Buy,” and the remaining 10 give a “Hold” rating.
The average analyst price target of $44.04 indicates a modest potential upside of 13.1% from the current price levels. The Street-high price target of $52 suggests that the stock could rally as much as 33.5%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
