Atmos Energy Corporation (ATO)

Conclusion

Atmos Energy is a regulated US natural gas utility. It distributes gas to about 3.4 million customers in eight states and runs a pipeline and storage business, with its headquarters in Dallas. At 173.35 USD on 9 November 2026, the company has a market capitalisation of 29.3 billion USD and an enterprise value of 39.0 billion USD.

The verdict is fair. The P/E of 20.9x is in line with its ten-year median of 20.9x, and EV/EBITDA of 14.6x is a 4.2% premium to its median of 14.0x. Price to sales of 5.95x sits well above its median of 3.76x, a premium of 58.5%. The fair value band runs from 135.04 to 202.55 USD with a midpoint of 168.79 USD, giving a margin of safety of -2.6% at the current price. The discounted cash flow per-share value and the growth implied by the reverse DCF are not available, because free cash flow is negative. Delivered growth is 10.8% a year in revenue over five years but only 3.8% over three years, while EPS grew 8.8% a year over five years.

Several numbers support the case. The operating margin of 37.0% compares with a ten-year median of 26.6%, interest coverage is 13.95x, and EPS has compounded at 10.0% over three years. The weakest numbers are trailing free cash flow conversion of -144.1%, ROIC of 6.1% against a WACC of 7.6%, and an Altman Z-score of 1.66 in the distress zone. The current ratio of 0.81 adds to the pressure on liquidity.

Financial health

Financial strength is yellow: interest coverage of 13.95x holds it up, while the Altman Z-score of 1.66 and the current ratio of 0.81 pull it down. At 30 June 2026, the quick ratio was 0.54, net debt to EBITDA was 3.65x on a trailing basis, and debt to equity was 0.67. The Altman model was designed for manufacturers, and this regulated utility is not one, so its distress reading should be treated with care. Insolvency risk is low, with an estimated probability of about 0.5% by the Ohlson model over one to two years, based on figures as of 30 September 2025.

Earnings quality

Earnings quality is red, because cash conversion and share count both weigh against the company. Free cash flow conversion is -144.1% on a trailing basis and -144.1% over five years, and trailing free cash flow after stock-based compensation is -2.03 billion USD. The accrual ratio is -3.1%, and stock-based compensation is 0.3% of revenue. The share count has grown at 5.5% a year over five years, which points to dilution rather than buybacks. The Piotroski score is 5 of 9. The Beneish M-score is not available. On the positive side, the company beat earnings estimates in 7 of the last 8 quarters, with an average surprise of 3.0%. Estimate revisions for the current year were 0.2% over 90 days, and for next year were -0.2%.

Profitability

Profitability is green. The gross margin is 61.0% against a ten-year median of 48.4%, the operating margin is 37.0% against 26.6%, and the net margin is 28.5% against 19.4%. Operating margin stability is 12.7%. ROIC is 6.1% against a WACC of 7.6%, and the given ROIC minus WACC value is -1.5%, which is neutral. The five-year median ROIC is 5.1%. Return on equity of 9.2% is flattered by leverage. The DuPont split, as of 30 September 2025, shows a net margin of 25.5%, an asset turnover of 0.16x and an equity multiplier of 2.13x. Returns on the asset base are therefore thin, and the equity return depends on the balance sheet.

Growth

Growth is green. Revenue compounded at 3.8% over three years, 10.8% over five years and 4.9% over ten years. EPS compounded at 10.0% over three years, 8.8% over five years and 9.2% over ten years. Revenue grew in 6 of the 10 comparable years. Analysts' estimate for next year's EPS growth is 8.2%. The three-year revenue figure is well below the five-year figure, so recent top-line momentum is slower than the longer record suggests.

Valuation

Valuation is yellow, and the verdict is fair with a margin of safety of -2.6%. The P/E of 20.9x compares with a ten-year median of 20.9x, a premium of -0.2%. EV/EBITDA of 14.6x compares with 14.0x, a premium of 4.2%. Price to sales of 5.95x compares with 3.76x, a premium of 58.5%, and price to book of 1.92x compares with 1.96x, a premium of -2.1%. The free cash flow yield is -6.9%, and the earnings yield is 4.8%. The discounted cash flow per-share value is not available, though the model uses a 8.9% discount rate and 2.5% long-term growth. The reverse DCF implied growth is not available, so it cannot be set against the 3.8% three-year revenue growth delivered. The fair value band rests on fixed assumptions and is not a price target. The dividend yield is 2.2%, with a forward yield of 2.3%. The payout on free cash flow is not available because free cash flow is negative.

Risks

The weakest numbers would strain the company in specific ways. Negative free cash flow conversion of -144.1% means that, on these figures, the company is not generating enough cash to cover its spending and dividend, so it relies on outside funding. A continued rise in the share count of 5.5% a year would dilute existing holders. A ROIC of 6.1% below a WACC of 7.6% suggests that new investment is not yet earning its cost of capital. Net debt of 3.65x EBITDA and a current ratio of 0.81 leave little room if earnings or refinancing conditions weaken. The Altman Z-score of 1.66 gives a warning, though the model is not designed for utilities. Not available: the discounted cash flow per-share value, the reverse DCF implied growth, the Beneish M-score and the payout on free cash flow. This analysis has no debt maturity schedule and no revenue split by segment, so refinancing timing and the mix of pipeline and distribution earnings cannot be assessed.