Morgan Stanley has revised its price target for Atmos Energy (ATO) downward to $183 from $195, while keeping an Equalweight rating on the stock. The adjustment comes on the heels of the company's recent upward revision of its fiscal 2026 earnings outlook and an increase in its annual dividend. Atmos shares closed at $177.46 on Thursday, narrowing the gap between the new target and the current trading price.
The Dallas-based natural gas distributor raised its fiscal 2026 earnings guidance earlier this month to a range of $8.40 to $8.50 per share, up from the previous estimate of $8.15 to $8.35. The company also increased its indicated annual dividend to $4.00 per share, representing a 14.9% increase from fiscal 2025. Capital spending for the year is projected at approximately $4.2 billion.
Texas remains the cornerstone of Atmos Energy's growth and regulatory strategy, with approximately 65% of its distribution rate base located in the state. The company's first-half net income reached $984.9 million, or $5.92 per diluted share, with $2.0 billion in capital expenditures primarily directed toward safety and reliability projects. These investments are expected to flow into the rate base, where regulators determine allowed returns.
Morningstar analyst Andrew Bischof noted in a May 15 report that "Texas continues to drive growth" for Atmos, citing constructive regulation and significant infrastructure spending as key drivers for earnings growth and higher dividends. TD Cowen also raised its price target on Atmos last week to $196 from $193, though it maintained a Hold rating.
Atmos Energy operates as a regulated distributor and pipeline operator, serving approximately 3.4 million customers across eight states. The company also manages one of Texas's largest intrastate pipeline networks. Unlike typical commodity gas plays, Atmos's valuation is more closely tied to rate recovery, allowed returns, and balance sheet strength rather than day-to-day gas price fluctuations.
CEO Kevin Akers reported to analysts that the company gained over 51,000 customers in the 12 months ending March 31, with more than 39,000 of those additions in Texas. Akers highlighted "steady customer growth" and noted an increase in commercial and industrial customers as well.
Chief Financial Officer Chris Forsythe described the updated earnings outlook of $8.40 to $8.50 as "a pretty good base" for modeling fiscal 2027 and beyond. He also confirmed that capital spending for fiscal 2026 should come in around $4.2 billion.
The company's growth trajectory is not without risks, however. Atmos points to potential headwinds including regulatory outcomes, credit and capital market conditions, interest rates, weather, commodity price volatility, and its concentrated exposure to Texas. Any of these factors could impact the speed at which capital spending translates into profitability.
Analysts remain split on valuation, with some models like GuruFocus's GF Value at $154.31 diverging sharply from current trading levels and analyst targets. The Morgan Stanley price target reduction does not reflect a shift in the company's business outlook but rather the stock's proximity to existing price targets following the guidance increase and dividend hike.
