An energy company consisting of five reportable business segments, The Utility segment, The Pipeline and Storage segment, The Exploration and Production segment, The Energy Marketing segment and The Timber segment.
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National Fuel Gas [NFG]:Special Situation: Hidden AssetsMario Gabelli pick.Current Price: $67.83Target Price: $130 ?I have written about NFG in the past, I believe because I have seen Mario Gabelli's compelling case for the company before. National Fuel Gas is made up of three parts, a Buffalo, NY natural gas utility worth an estimated $19/share, a nat gas pipeline the Marcellus shale region, and some natural gas production, all worth an estimated total of $40/share. After backing those assets out, the company has a market cap of $2.4 billion versus the potential to reap over $8 billion from the shale gas drilling rights that it owns.Deej
Buy this dividend-paying utility and get a free call option on nat gas
I took a look at National Fuel Gas (NFG) when Mario Gabelli mentioned it in a previous Barron's Roundtable. As a result of a collapse in the price of natural gas NFG is thirty-something percent cheaper today than when I first saw him mention it. It's starting to look more interesting at this level.
At its core, NFG owns a valuable natural gas utility and a pipeline that when looked at on a sum-of-the-parts basis make up nearly the entire valuation of the stock today. That means anyone who purchases it at this level not only gets a relatively solid company that has increased its dividend for 42 consecutive years (currently yielding around 3.3%), but through its significant Marcellus acreage essentially a free call option on natural gas prices.
While the upside on a company like NFG likely isn't as great as it would be on a pure nat gas play like some other companies, including he messed-up Chesapeake Energy (CHK), I suspect that the downside is significantly less as well...and that is something that I always pay VERY close attention to in my real-life portfolio. Almost all of my stocks pay me solid dividends to wait for some potential catalyst to materialize. NFG fits that bill nicely and may be my next real-world purchase.
Here's what Gabelli had to say about the company in this week's Barron's:
National Fuel Gas [NFG] is a Buffalo, N.Y.-area utility which I recommended in the past. Natural gas has dropped to $2.40 per thousand cubic feet from $4.40 per Mcf. National Fuel Gas bought significant acreage in what is known as the Marcellus shale area. The utility has about 750,000 customers and generates good cash flow. It is worth about $17 a share. They have a midstream business -- pipelines -- that is worth about $20. The balance of the company is the Marcellus acreage. Assuming gas prices rise to $4 to $4.50 per Mcf two or three years from now, the stock could be worth close to $80, up from $44. The company pays a dividend of $1.46 a share and yields 3.3%.
NFG did indeed become a real-world position in my portfolio at around $45/share.
Deej