On Friday, UBS initiated coverage on ONE Gas Inc. (NYSE:OGS) stock with a Sell rating, setting a price target of $61.00. The firm cited concerns over earnings projections for the years 2026 and 2027, which are estimated to be 3-4% below the current market expectations. UBS analysts suggest that it might not be until 2028 that ONE Gas could fully recover from the earnings impact due to unrecovered expenses.
The analysis by UBS points to the stock's current valuation, which trades at a 4% premium based on 2026 earnings estimates, despite expectations of below-average earnings growth and what is considered third quartile regulation.
ONE Gas is in the midst of a significant rate case in Kansas, which accounts for 27% of the company's rate base. The company is seeking to improve its equity ratio and return on equity (ROE) through this process.
The outcome of the Kansas rate case is seen as a potential catalyst for the company, with staff testimony scheduled to be filed on July 1. The firm also notes that a more substantial narrowing of the earnings gap may not occur until the conclusion of another rate case in Oklahoma, expected in late 2027.
While acknowledging that ONE Gas is pursuing the right strategic direction, UBS maintains that the stock price seems to anticipate higher earnings growth than their forecasts suggest. The firm anticipates that negative consensus earnings revisions could impact the performance of ONE Gas shares over the next 12 months.
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