RGC Resources, Inc. (RGCO) is a holding company whose subsidiaries include Roanoke Gas Company (Roanoke Gas) and RGC Midstream, LLC (Midstream). Originally established in 1883, Roanoke Gas is a regulated gas utility that distributes and sells natural gas primarily within the Roanoke VA metropolitan area. It has exclusive, multi-year franchises in the cities of Roanoke and Salem and Town of Vinton VA. Midstream was formed in 2015 to invest in Mountain Valley Pipeline, LLC (MVP), which was created to develop and operate natural gas pipelines within the state of Virginia.
Roanoke is Virginia’s largest metropolitan area west of the capital, Richmond. It had an estimated population of 315,000, according to the 2020 census. Roanoke Gas serves ~63,000 customers, ~91% of which are residential. About 67% of its annual gas distribution volume and 40% of revenues are derived from commercial and industrial customers. Customer growth has averaged 0.3% annually over the past five years. Annual gross service line additions of 600-700 have been mostly offset by attrition. The company recently expanded its service offerings to Franklin County, which is adjacent to its service territory, with the increased gas supply available from the MVP.
Midstream ($108 thousand or 0.1% of revenues, $910.5 thousand or 6.5% of income before income taxes). The Mountain Valley Pipeline originates in West Virginia, where it connects to the Equitrans Midstream pipeline, and runs into Virginia, passing through Roanoke Gas’s service territory, to connect with the Transcontinental Gas Pipeline, just north of the North Carolina border. It facilitates the transport of natural gas to LNG port facilities in the southern states for local distribution and export and north to Washington DC and New York City, but it also raises the potential for faster economic development in the areas in and around Roanoke.
The project was completed at a cost of $9.6 billion, nearly three times the original 2014 cost estimate of $3.5 billion, due to significant cost overruns from legal delays, challenges with the terrain and environmental mitigation costs, which are continuing. Cost overruns on the project forced RGCO to take a $55.1 million pre-tax impairment charge in fiscal 2022.
The project was completed at a cost of $9.6 billion, nearly three times the original 2014 cost estimate of $3.5 billion, due to significant cost overruns from legal delays, challenges with the terrain and environmental mitigation costs, which are continuing. Cost overruns on the project forced RGCO to take a $55.1 million pre-tax impairment charge in fiscal 2022.
EQT holds a majority stake in the pipeline. Other investors include NextEra Energy Resources (31% stake)., Con Edison Transmission (12.5%) and WGL Midstream (10%). Midstream has a 1% interest in MVP.
With the placement of MVP into service in 2024, RGCO’s investment has begun to earn a return. So far in fiscal 2025, RGCO has received cash dividends of $2.7 million. Two smaller add-on projects could enhance the cash flow of the pipeline for investors, including the Southgate expansion, which will bring 550 million dekatherms per day (dth/day) of capacity to the North Carolina border (estimated completion in 2028) and the Boost expansion, which will increase compression to raise the capacity of the pipeline just north of the Southgate expansion by 25% or 0.5 billion dth/day to 2.5 billion dth/day.
The placement into service of MVP may be an inflection point for the greater Roanoke Valley economy, as the augmented supply of natural gas should raise interest from businesses looking to relocate or expand into the region. Over time that should lead to a faster pace of economic development and growth in the area. The MVP is now facilitating growth for Roanoke Gas, which is expanding its gas distribution service in Franklin County, which is adjacent to its core service territory.
While there is further potential for Midstream to grow its earnings, the segment is highly leveraged, having borrowed the funds to invest in the pipeline. Year-to-date in fiscal 2025, it shows total income before taxes of only $186.5 thousand or only 1.1% of consolidated total income before taxes, as $2.4 million of equity in earnings of MVP have been substantially offset by $2.1 million of interest expense and $118 thousand of other operating costs. That compares with segment pretax income of $851.8 thousand last year. The decline in fiscal 2025 is due to lower equity in earnings, higher interest expense and higher operating costs. Yet, RGCO has received three quarterly distributions from MVP totaling $2.7 million in the first nine months of 2025 and expects to receive similar quarterly distributions going forward.
RGCO has recently taken steps to lower its interest costs by refinancing its Midstream debt. It has refinanced $53.6 million of Midstream loans into one new note that matures in 2032. Interest on the new note is payable at SOFR plus 155 bps. The company has entered into new interest rate swaps which, together with its existing swaps, have fixed the yield on the debt at 4.67% for fiscal 2025.
Roanoke Gas ($84.5 million or 99.9% of fiscal 2024 revenues, $14.5 million or 93.5% of income before income taxes) is regulated by the Virginia State Corporation Commission (VSCC). In April, it received a final order on its rate case, granting $4.08 million in additional revenues, based on a 9.9% ROE and 59% equity ratio. A $49 million five-year infrastructure upgrade program called Steps to Advance Virginia’s Energy (SAVE) was approved in 2024. Rider updates for SAVE and a Renewable Natural Gas (RNG) program, both of which have received positive reports from VSCC staff, should be effective on October 1. The company is currently evaluating its 2026 rate case.
Roanoke Gas is pursuing a number of residential, commercial and industrial growth opportunities, many of which are being facilitated by the natural gas now available through the MVP. It has been in talks to connect Rocky Mount, a town of 5,000 people located in Franklin County, to its natural gas system, and expects further residential development in the county now that it can supply natural gas from the MVP. Roanoke Gas has recently connected Stir-Pak Solutions, its first commercial customer at the Summit View Business Park. Stir-Pak had been using propane to fuel production of its flexible packaging solutions. RGCO expects additional volume growth when Carilion Clinic, the largest employer in the region and its third largest gas customer, completes a major expansion project later this year. It is also exploring a renewable natural gas production facility in cooperation with the Western Virginia Water Authority in the Roanoke metropolitan area.
Technicals. From a technical perspective, RGCO’s stock has been in an uptrend since bottoming in October 2023. It’s rise has been slow and steady, and also noteworthy, as it declined far less than the S&P SmallCap 600 Index during the “Liberation Day” tariff-related sell-off in April 2025. Thus, it outperformed the broader market significantly during the month of April. It has, however, underperformed since then, as the broader market has raced to recoup its losses.
With the stock closing at $22.27 today (9/29), its June 30 intraday high of $23.82 is a key watchpoint. A break above that level would mark a higher high and a likely continuation of the uptrend. On the other hand, the stock has mostly been trading sideways since early August and now looks like it is struggling to hold on to its June gains. Failure to break through $23.82 to the upside could be a prelude to a potential near-term decline and a period of underperformance. Year-to-date, the stock has risen 11.0%, above the S&P SmallCap 600’s 2.8% gain, but below the Dow Jones U.S. Gas Utility Index’s 19.8% advance.
Valuation. With a current equity market capitalization of only $223 million, RGCO is by far the smallest stock in the mostly mid-cap gas utility sector, where the average equity market capitalization is $6.9 billion. The group’s average equity market cap is skewed by two large cap peers: Atmos Energy, which has an equity market cap of $27.0 billion, and NiSource (NI), whose market cap is $19.0 billion. Excluding those two, the average equity market cap for the group is $3.6 billion.
RGCO’s small size has both advantages and disadvantages for investors. The most obvious disadvantage is the potential lack of liquidity, which could cause its stock price to be more volatile, especially during times of heightened volatility in the broader market. As noted above, however, RGCO’s stock was substantially less volatile (i.e. declined by a smaller percentage) than the broader market during the April market swoon.
One potential advantage, therefore, is that the stock’s price performance may be less correlated to broader market or sector trends. This is also supported by the location of its service territory outside of major metropolitan areas and the growth potential of the areas that are passed by the Mountain Valley Pipeline.
As a smaller company, RGCO and its investors may also have greater optionality. It could conceivably add to its service territory through internal growth, such as its expansion into Franklin County. It could also make an acquisition of an independent LDC, such as the much smaller Southwestern Virginia Gas Company, which operates nearby in the Town of Martinsville and Henry County. It could also acquire the local operations of other players, like Atmos Energy, whose presence in the state is currently modest.
Alternatively, RGCO could itself be an acquisition candidate. Interested parties could include Columbia Gas of Virginia, Inc., a subsidiary of NiSource (NI), or ATO and SO, which might want to expand their presence in the state. Potential acquirers could also include natural gas utilities that are not currently operating in the state but looking to establish a presence there to benefit from RGCO’s above average growth potential.
At its current price of $22.22, RGCO is valued at 17.7 times projected 2025 EPS of $1.26 and 17.0 times projected 2026 EPS of $1.31. (Both of those estimates are from the only analyst who formally follows the company, Michael Gaugler of Janney Montgomery Scott.) Those forward multiples are in line with the peer group averages of 17.9 times projected 2025 EPS and 16.9 times projected 2026 EPS. Management has given a preliminary guidance range of $1.18-$1.28 for fiscal 2026, which is below Mr. Gaugler’s estimate. Given the low rate of earnings growth implied by the 2026 guidance and expectations that growth could remain modest for at least the next few years, the stock seems fairly valued at current levels.
On the other hand, with capital spending likely to be closer to cash flow from operating activities vs. peers, RGCO seems to be well placed to support its dividend. Its dividend yield of 3.7% is slightly above the peer group average of 3.5%.
From that perspective, RGCO appears to be a solid investment that could hold up relatively well in an uncertain economic environment. Its ability to grow through acquisitions, although limited without additional equity issuance, and the possibility that it could conceivably be acquired by one of its publicly traded peers, offer additional upside potential.
Quick Take reports are conducted without a full financial analysis. Consequently, the report is issued without safety and performance ratings and price target. This report does not signify the initiation of formal coverage on the subject company.
September 30, 2025 (Report published on September 29, 2025.)
Stephen P. Percoco
Lark Research
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© 2015-2026 by Stephen P. Percoco, Lark Research. All rights reserved.
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