Natural gas distribution pipelines play a vital role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small-diameter pipelines. The natural gas network in the United States has nearly 3 million mainline and other pipelines. The increasing consumption of natural gas in the United States and abroad is driving demand for distribution pipelines.

The country has witnessed a rise in domestic natural gas production as a result of increased exports and public awareness of lower emissions. The need for additional distribution pipes will increase as demand for natural gas from various consumer segments rises.

The natural gas industry also needs a steady stream of funding to cater to aging infrastructure and the replacement and maintenance of an extensive network of pipelines. Since September 2024, the Fed has lowered its federal fund rate by one percentage point. In 2025, more interest rate reductions are anticipated. Capital-intensive utilities should have improved chances as a result of the rate drop. This is because their margins and profitability will rise as a result of lower capital servicing expenses.

Utility service providers generally enjoy consistent revenue growth and profitability. Due to their ability to generate cash flows and manage returns, utilities can enhance shareholder value through regular dividend payments.

Per a U.S. Energy Information Administration (“EIA”) report, natural gas consumption for electricity generation is expected to contribute nearly 40% each in 2025 and 2026, respectively. The EIA also expects U.S. dry natural gas production to increase 2% in 2025 as well as 2026. It estimates dry natural gas production to rise to 105 billion cubic feet per day (Bcf/d) in 2025 as natural gas prices increase.

In this article, we run a comparative analysis on two Utility - Gas Distribution companies — Chesapeake Utilities CPK and New Jersey Resources NJR — to decide which stock is a better pick for your portfolio now.

Both stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chesapeake Utilities has a market capitalization of $2.90 billion, while New Jersey Resources has $4.86 billion.

CPK & NJR’s Growth Projections

The Zacks Consensus Estimate for Chesapeake Utilities’ 2025 earnings is pegged at $6.27 per share on revenues of $849.1 million. This indicates a year-over-year bottom-line increase of 16.3% and top-line growth of 7.9%.

The consensus mark for New Jersey Resources’ fiscal 2025 earnings is pinned at $3.15 per share on revenues of $1.83 billion. This implies year-over-year bottom-line growth of 7.5% and a top-line improvement of 1.7%.

CPK & NJR’s Stock Price Performance

In the past six months, NJR’s shares have risen 2.1% against the industry's decline of 4.9%. Shares of CPK have risen 0.9% in the same time frame.

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Debt Position of CPK & NJR

The debt-to-capital ratio is a vital indicator of the financial position of a company. The indicator shows the amount of debt used to run a business. Chesapeake Utilities and New Jersey Resources have a debt-to-capital of 51.63% and 59.64%, respectively, compared with the sector’s 60.26%.

Currently, Chesapeake Utilities times interest earned (TIE) ratio is 3.4, and the same for NJR is 4.2. Both companies have maintained their TIE ratio at more than 1 for over a decade now. This indicates that the companies have enough financial flexibility to meet their near-term debt obligations.

CPK & NJR’s Dividend Yield

Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for Chesapeake Utilities is 2.06%, while the same for New Jersey Resources is 3.76%. The dividend yields of both companies are better than the Zacks S&P 500 Composite’s average of 1.27%.

Outcome

Both Chesapeake Utilities and New Jersey Resources stocks are well-positioned and, hence, are wise investments for your portfolio. They have the potential to improve further from their current position and serve the demands of their growing customer base. However, our choice at this moment is NJR, given its better TIE ratio, dividend yield and price performance than CPK.

 

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Chesapeake Utilities Corporation (CPK) : Free Stock Analysis Report

NewJersey Resources Corporation (NJR) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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