Spire Inc. (NYSE:SR) is a public utility holding company based in St. Louis, MO. The company operates in three segments: Gas Utility, Gas Marketing and Midstream. Its Gas Utility segment accounts for 93% of Spire’s operating revenues and 80% of its operating income. The segment includes (a) Spire Missouri, which is the largest natural gas distribution utility system in Missouri; (b) Spire Alabama, a gas distribution utility that was acquired in 2014 and operates in central and northern Alabama and serves the city of Birmingham; (c) Spire Gulf, which serves the city of Mobile AL; and (d) Spire Mississippi, which serves south-central Mississippi.
The Gas Marketing segment provides natural gas marketing and related services to retail and wholesale customers both within and outside of Spire’s Gas Utility service areas. The Midstream segment owns and operates pipeline and storage assets both within and in reasonable proximity to Spire’s core Gas Utility operations in Missouri.
Spire reported a 24Q3 GAAP loss of $0.28 per share, better than the $0.48 loss in 23Q3. Its non-GAAP, net economic loss per share was $0.14, also improved over 23Q3’s $0.42 loss, and better than the consensus $0.17 loss. Operating revenues of $414.1 million were down 1.1% vs. the prior year.
Despite the smaller-than-expected loss, management lowered 2024 guidance, acknowledging that it would not be able to make up for the performance shortfall suffered earlier this year from unseasonably warm winter weather. It reduced its Gas Utility net economic earnings (NEE) guidance by $18 million at the midpoint or 7.7% to $213-$221 million, and raised Corporate & Other’s expected net economic loss by $6 to ($28)-($24). These declines were partially offset by higher NEE expectations in Gas Marketing and Midstream.
My fiscal 2024 projections of $4.28 per share for GAAP earnings and $4.25 for NEE per share (NEEPS) are consistent with that guidance. For fiscal 2025, I project operating revenues of $2.7 billion, up 3.1%, GAAP diluted EPS of $4.36 and NEEPS of $4.39.
My price target of $71 applies a multiple of 16.3 to projected fiscal 2025 GAAP EPS of $4.36 (or 16.1 times NEEPS of $4.39). That is above the forward multiple for projected 2024 EPS of 15.3 but below the peer group average of 18.5. At its Oct. 18 closing price of $65.25, the stock has a potential 12-month total return of 13.4%, including its 4.6% dividend yield. My performance rating is “2” (Outperform).
Besides upgrading infrastructure to grow rate base, Spire’s strategy is to improve operating efficiency and profitability by rationalizing its operations and pursuing bolt-on acquisitions (e.g. in gas pipelines and storage) within or near its operating footprint to lower its cost structure and improve system reliability. Most recently, it has reduced headcount in shared services and it is also streamlining its leadership structure. Key risks include a potential spike in natural gas prices or slowing of the economy. Other risks, which contribute to the stock’s low valuation vs. peers, include its high debt levels and below average customer growth. At the current share price, Spire could reduce leverage and simplify its capital structure by issuing common stock to take out its high cost preferred with little dilution to existing shareholders.
This is a summary of my recent initial report on Spire Inc. (SR). To obtain a copy of the full report, please reach out to me using the contact information provided below.
October 27, 2024 (Report published on October 20, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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