Has National Fuel Gas Run Too Far After Strong Multi Year Share Price Gains?

• If you are wondering whether National Fuel Gas is still worth considering after its strong run, or if the easy money has already been made, you are not alone.
• The stock has climbed to around $82.40, up 1.1% over the last week, 1.7% over the last month, and 34.3% year to date, with a 39.1% gain over the past year and 133.9% over five years.
• That kind of steady outperformance has been supported by a favorable backdrop for US natural gas infrastructure and storage, as investors look for reliable cash generators in the utilities space. National Fuel Gas has also been in focus as a relatively defensive play with exposure to long term energy demand, which helps explain why the market has been willing to rerate the stock.
• Despite those gains, our framework suggests National Fuel Gas scores a solid 5/6 on valuation checks. This hints that the market may still be underestimating it. In the rest of this article we will walk through different valuation approaches to see how that score stacks up, then finish with another way to think about what National Fuel Gas might really be worth.

National Fuel Gas delivered 39.1% returns over the last year. See how this stacks up to the rest of the Gas Utilities industry.

Approach 1: National Fuel Gas Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model looks at the cash National Fuel Gas is expected to generate in the future, then discounts those projected cash flows back to today to estimate what the business is worth right now.

National Fuel Gas currently generates about $39.37 Million in free cash flow, and analysts expect this to climb into the low to mid hundreds of Millions over the coming decade. For example, free cash flow is projected to reach roughly $487 Million by 2028, with further growth extrapolated by Simply Wall St out to 2035 using a 2 Stage Free Cash Flow to Equity framework.

When all of these future cash flows are discounted back to today in dollars, the DCF model suggests an intrinsic value of about $135.67 per share. Compared with the recent share price near $82.40, this implies the stock is around 39.3% undervalued on a cash flow basis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests National Fuel Gas is undervalued by 39.3%. Track this in your watchlist or portfolio, or discover 906 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for National Fuel Gas.

Approach 2: National Fuel Gas Price vs Earnings

For a consistently profitable company like National Fuel Gas, the Price to Earnings, or PE, ratio is a useful way to judge whether investors are paying a reasonable price for each dollar of earnings. In general, companies with stronger growth prospects and lower perceived risk tend to justify a higher PE, while slower growing or riskier businesses usually deserve a lower multiple.

National Fuel Gas currently trades on a PE of about 14.4x. That is slightly above the Gas Utilities industry average of around 13.9x, but below the broader peer group average near 18.6x. To go a step further, Simply Wall St calculates a proprietary Fair Ratio of 23.6x, which reflects what the PE could be given the company’s earnings growth outlook, margins, industry positioning, market cap and specific risk profile.

This Fair Ratio is more tailored than a simple comparison with peers or the industry, because it explicitly accounts for how National Fuel Gas is expected to perform rather than assuming all utilities deserve the same multiple. With the current PE of 14.4x sitting well below the 23.6x Fair Ratio, the stock still screens as undervalued on an earnings basis.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your National Fuel Gas Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to turn your view of National Fuel Gas into a story that links what you believe about its future revenue, earnings and margins to a financial forecast and then to a Fair Value estimate you can compare with today’s price. On Simply Wall St’s Community page, millions of investors use Narratives to lay out their assumptions, see how those assumptions translate into forecasts and Fair Value, and then decide whether the current share price suggests a potential buy, hold or sell. Narratives are dynamic, automatically updating when new information such as earnings releases, production guidance or buyback activity is added to the platform, so your view does not go stale. For National Fuel Gas, one investor might build a more optimistic Narrative that assumes robust long term gas demand, improving margins and a Fair Value near 101 dollars, while a more cautious investor may focus on decarbonization and regulatory risks, resulting in a lower Fair Value and a very different call on whether the current price looks attractive.

Do you think there's more to the story for National Fuel Gas? Head over to our Community to see what others are saying!

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.

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