- ONEGas (OGS +0.4%) is downgraded to Sell from Neutral with a $72 price target at UBS, as it estimates the company will replace fewer pipeline miles over the next three years vs. 2014-16.
- UBS says OGS has enjoyed a strong run, supported by excess earnings and rate base-related growth as well as a lower interest rate environment, and valuation looks comparable to fast-growing peers on a PEG basis, but the firm thinks the period of high growth is set to slow via a combination of relative rate base growth opportunities declining given OGS's larger size.
- The firm projects OGS's three-year EPS growth compound annual growth rate to fall to ~5.3% from its current 7.8%, implying PEG of 4.4x, up from 3.2x in 2017, and causing shares to trade at or below the peer group average vs. a current premium.
- Given the recent rise in investor concerns related to interest rates, a slowing earnings growth profile also will make equity performance more challenged, UBS says.
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