**_”ONE Gas Inc. faces stagnant returns on capital employed at 6.3%, aligning with industry averages but showing no improvement over five years despite a 36% increase in capital deployed. Recent stock performance includes a 20.14% one-year return and a new 52-week high of $84.11, yet long-term shareholder gains remain modest at 35% over five years. 2026 guidance projects EPS of $4.65 to $4.77 amid customer growth and capital investments, with dividends increased for the 12th year.”_**
ONE Gas Inc., a regulated natural gas distribution company serving over 2.3 million customers across Oklahoma, Kansas, and Texas, has seen its return on capital employed (ROCE) remain flat at approximately 6.3% over the past five years. This metric, calculated as earnings before interest and tax divided by capital employed (total assets minus current liabilities), underscores a lack of efficiency gains from its expanding asset base. The company’s capital employed has grown by 36% during this period, reflecting investments in infrastructure and system integrity, but the returns generated from these additions have not scaled accordingly. This plateau in ROCE mirrors broader challenges in the utilities sector, where regulated environments often cap upside potential while demanding consistent capital outlays for reliability and expansion.
Financial metrics from the trailing twelve months to September 2025 show EBIT of $444 million against capital employed of about $7 billion (derived from $8.5 billion in total assets less $1.5 billion in current liabilities), yielding the 6.3% ROCE. This figure is on par with the gas utilities industry average, suggesting ONE Gas is neither outperforming nor lagging its peers significantly. However, the stagnation raises questions about the company’s ability to generate compounding returns, a key driver for long-term value creation in capital-intensive industries.
Stock performance provides a mixed picture. Shares recently hit a 52-week high of $84.11, with the stock last trading around $82.49, reflecting a year-to-date gain of 6.78% and a one-year total return of 20.14%. Over three years, returns stand at 10.03%, while the five-year total shareholder return is 35%. These figures, inclusive of dividends, indicate steady but unremarkable growth compared to broader market benchmarks like the S&P 500, which posted stronger gains over similar periods. The P/E ratio of 19.36 suggests the market prices in modest growth expectations, with low price volatility relative to the overall market.
| Period | Total Shareholder Return |
|---|---|
| Year-to-Date | 6.78% |
| 1-Year | 20.14% |
| 3-Year | 10.03% |
| 5-Year | 35% |
Recent quarterly results highlight operational resilience amid these return constraints. In the third quarter of 2025, net income reached $26.5 million, or $0.44 per diluted share, up from $19.3 million, or $0.34 per diluted share, in the same quarter of 2024. Operating income climbed to $65.4 million from $59.5 million, driven primarily by $19.2 million from new rates implemented across its service territories and $1.4 million from residential sales boosted by net customer additions in Oklahoma and Texas. Total revenues for the quarter were $379.1 million, an increase from $340.4 million the prior year.
Year-to-date through September 2025, net income totaled $177.9 million, or $2.94 per diluted share, compared to $145.8 million, or $2.56 per diluted share, in 2024. Operating income rose to $317.7 million from $274.6 million, with key contributions including $92.2 million from new rates and $5.3 million from residential customer growth. Revenues for the nine-month period were $1,738.1 million, up significantly from $1,452.9 million, reflecting higher volumes and rate adjustments.
Offsets to these gains included higher expenses: depreciation and amortization increased by $4.8 million in the third quarter and $16.8 million year-to-date due to ongoing capital investments; ad valorem taxes rose by $4.1 million quarterly and $13.8 million year-to-date; employee-related costs grew by $3.8 million quarterly and $12.8 million year-to-date. Additional pressures came from insurance, bad debt, information technology expenses, and a one-time carrying charge refund in Oklahoma related to a gas purchase settlement.
Customer base expansion remains a positive factor. Total customers grew to 2,296 thousand year-to-date in 2025 from 2,281 thousand in 2024, with residential customers increasing to 2,119 thousand from 2,103 thousand. This net growth, particularly in high-demand areas like Oklahoma and Texas, supports volume increases and justifies capital spending on service extensions.
Capital expenditures, including asset removal costs, totaled $207.6 million in the third quarter of 2025, up slightly from $197.7 million in 2024, and $575.4 million year-to-date, comparable to $571.7 million the prior year. These investments focus on system integrity, replacement projects, and new connections, aligning with regulatory requirements and long-term reliability goals.
| Metric | Q3 2025 | Q3 2024 | Change |
|---|---|---|---|
| Net Income ($M) | 26.5 | 19.3 | +37.3% |
| EPS (Diluted) | 0.44 | 0.34 | +29.4% |
| Operating Income ($M) | 65.4 | 59.5 | +9.9% |
| Revenues ($M) | 379.1 | 340.4 | +11.4% |
| Capex ($M) | 207.6 | 197.7 | +5.0% |
| Metric | YTD 2025 | YTD 2024 | Change |
| Net Income ($M) | 177.9 | 145.8 | +22.0% |
| EPS (Diluted) | 2.94 | 2.56 | +14.8% |
| Operating Income ($M) | 317.7 | 274.6 | +15.7% |
| Revenues ($M) | 1,738.1 | 1,452.9 | +19.6% |
| Capex ($M) | 575.4 | 571.7 | +0.6% |
Regulatory developments play a crucial role in shaping returns. Recent approvals include a $41.1 million base rate increase in Oklahoma effective February 2026, along with an energy efficiency incentive of $2.4 million and an excess deferred income tax credit of $17.9 million. In Texas, a $41.1 million rate case request is pending, with new rates anticipated in the first quarter of 2026. Kansas approved a $7.2 million increase under the Gas System Reliability Surcharge, and the Rio Grande Valley saw a $2.9 million hike via the Gas Reliability Infrastructure Program. These adjustments help recover costs and support ROCE stability, though they are subject to regulatory scrutiny that can limit aggressive return enhancements.
Looking ahead, 2025 financial guidance has been narrowed to net income of $262 million to $266 million, or EPS of $4.34 to $4.40 per diluted share, from the prior range of $261 million to $267 million and $4.32 to $4.42. The midpoint remains unchanged, reflecting confidence in operational execution. Capital expenditures for 2025 are projected at $750 million.
For 2026, guidance anticipates net income of $294 million to $302 million, or EPS of $4.65 to $4.77, with a midpoint of $298 million and $4.71. This incorporates benefits from new rates and customer growth, offset by higher operating and depreciation expenses. Capital investments are expected to reach $800 million, emphasizing system upgrades. The company has updated its five-year targets, raising the long-term diluted EPS growth rate to 5% to 7% from 4% to 6%, signaling improved prospects through disciplined capital allocation and regulatory recoveries.
Dividend policy underscores a commitment to shareholder income. The board recently increased the first-quarter 2026 dividend by one cent to $0.68 per share, annualizing to $2.72, payable March 6, 2026. This marks the 12th consecutive year of increases, with an expected average annual growth of 1% to 2% through 2030. The current yield stands at 3.29%, appealing to income-focused investors in a sector known for stability.
Analyst sentiment is cautious but balanced. The consensus rating is Hold, with an average price target of $85.57, implying potential upside from current levels. Recent actions include Morgan Stanley maintaining an underperform rating at $73, Bank of America raising its target to $92 with a buy, Mizuho increasing to $90 with outperform, Weiss Ratings downgrading to hold, and Jefferies lifting to $99 with buy. Upgrades from UBS highlight tailwinds supporting better growth, while others note the stock may be slightly overvalued at a P/E of 19.36.
Market capitalization hovers around $5.05 billion, with trailing twelve-month revenue at $2.37 billion and net income at $254.94 million. EPS on a trailing basis is $4.29, with the next earnings report scheduled for February 18, 2026.
Risk factors include the potential for flat ROCE to persist if capital deployments continue into low-return projects, regulatory delays in rate recoveries, and exposure to natural gas price volatility, though mitigated by pass-through mechanisms. Opportunities lie in customer expansion in growing regions, efficiency improvements, and potential for higher EPS growth as outlined in the updated five-year plan.
| Key Financial Metric | Value |
|---|---|
| ROCE | 6.3% |
| Market Cap ($B) | 5.05 |
| TTM Revenue ($B) | 2.37 |
| TTM Net Income ($M) | 254.94 |
| TTM EPS | 4.29 |
| Dividend Yield | 3.29% |
| P/E Ratio | 19.36 |
Disclaimer: This article is for informational purposes only and is not intended as investment advice, a recommendation, or an offer to buy or sell securities. Readers should conduct their own research or consult a qualified financial advisor before making any investment decisions. The information provided is based on publicly available data and may contain errors or omissions.
