David Hay — Friday POW!: National Fuel Gas (NFG) — a steady compounder's regulated pivot
"A steady compounder that's also making a transformational bet on regulated growth" — vertically-integrated Appalachian gas, 11× earnings, a 55-year dividend streak, and a $2.6B Ohio utility deal that doubles the regulated business.
One-line take: This week's POW! is National Fuel Gas (NFG), a century-old, fully vertically-integrated Appalachian gas company (produce → gather → transport → distribute) at ~11× earnings versus 15–20× for pure regulated utilities. The catalyst is the $2.62B acquisition of CenterPoint's Ohio gas utility (announced Oct 2025), which roughly doubles the regulated rate base (~$1.6B → $3B+, customers past 1M) and tilts the earnings mix toward predictable, de-risked regulated cash flows. Q1 FY26 beat ($2.06 adj EPS, +24% YoY); FY26 guide reaffirmed $7.60–8.10 (~14% growth); 2.5% yield on a 55-year dividend-increase streak (~37% payout). Extra kickers: the Shippingport Lateral selling firm capacity to a data-center customer, and a Barron's Roundtable plug from Mario Gabelli (private market value "50% higher than the current price"). Analyst PTs $95–101 (~10–18%), bull case low-$120s longer term; breakout above multi-year resistance (range-expansion ~$75). Risks: M&A execution/dilution ($350M equity raise done, ~$1.5B debt to come), NY climate policy, $3–4 gas. A 3–5-year value/income hold. Plus a tax-loss-package recap (closing the Dec-1 trade, +~41% winners-over-losers, ~103% annualized): trim SLB again, keep AESI, full sell of EWY (Korea), trim EWJ (Japan); NVO the one that flipped a 30% gain into a 23% loss.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| NFG | National Fuel Gas | QT · SA · STK · FA | Positive | Pick of the Week — vertically-integrated Appalachian gas (produce → gather → transport → distribute, ~750k utility customers) at ~11× earnings vs 15–20× for pure utilities. The $2.62B CenterPoint Ohio LDC deal (Oct 2025; ~1.6× rate base) doubles the regulated business (rate base ~$1.6B → $3B+, customers >1M), de-risking earnings. Q1 FY26 beat ($2.06 adj EPS +24% YoY; GAAP $1.98 vs $0.49); FY26 guide $7.60–8.10 (~14% growth), 109 Bcf production (+12%); 2.5% yield, 55-yr dividend streak (~37% payout); 15+ yrs drilling inventory. Shippingport Lateral sells firm capacity to a data-center customer (~$15M/yr); Mario Gabelli (Barron's) puts private market value 50% above price. PTs $95–101 (~10–18%), bull low-$120s; breakout above multi-year resistance (~$75 range-expansion). Risks: M&A dilution/execution, NY climate policy, $3–4 gas. A 3–5-yr value/income compounder. | read |
| AESI | Atlas Energy Solutions | QT · SA · STK · FA | Positive | Tax-loss-package recap (Dec-1-2025 trade) — Atlas Energy Solutions is "staying on our recommended list at this time," one of the package winners alongside SLB. Held, no trim suggested (unlike SLB). | read |
| NVO | Novo Nordisk (ADR) | QT · SA · FA | Neutral | Tax-loss-package recap (cautionary) — Haymaker "whiffed" by not suggesting a gain after NVO ran ~30% in <60 days; it then "flipped from a 30% gain into a 23% loss," "a costly reversal of fortune." The package's one self-criticized miss — a lesson in taking partial profits, not a fresh view on NVO. | read |
| SLB | Schlumberger | QT · SA · STK · FA | Negative | Tax-loss-package recap — the package's big winner ("thank you, SLB!"), staying on the list but Haymaker suggests "another trim on SLB after its muscular rally," a "highly volatile name, as are most oil-service companies." A trim after the win, not an exit. | read |
| EWJ | iShares MSCI Japan ETF | QT · SA · STK | Negative | Recap / trim — "another trim is in order" on Japan: the yen remains extremely undervalued but "the Japanese market itself appears equally extended to the upside." Still bullish Asia, just taking some off. | read |
| EWY | iShares MSCI South Korea ETF | QT · SA · STK | Negative | Recap / full sell — "a sale of EWY (S. Korea)," a rare complete-exit call: "there are better ways to express a bullish outlook on Asia, which we continue to have." Exit Korea, keep the Asia thesis. | read |
References only (not picks): NFG subsidiaries Seneca Resources / National Fuel Midstream / Empire Pipeline; CenterPoint Energy (the Ohio LDC seller, ticker CNP); Mario Gabelli (the Barron's Roundtable endorser); Seth Klarman (the epigraph). The post's image-only Recommended List is not text-readable, so david-hay/portfolio.json is unchanged.
2. Talking points
Closing the tax-loss-selling package — a winning trade
- Haymaker closes the Dec-1-2025 "tax-loss-selling victims" package — buying year-end selling-crescendo losers. Result: winners outweighed losers by ~41% ("thank you, SLB!"), ~8.6% in two months / ~103% annualized while the S&P was flat. The one black mark: not suggesting a sale of NVO after a ~30% pop — it flipped to a 23% loss.
The pick — National Fuel Gas, a century-old integrated gasco
- Over a century old, "quietly moving gas from the ground in Appalachia to homes in western New York and Pennsylvania." Fully vertically integrated: upstream (Seneca), midstream gathering/processing, interstate pipeline + storage (Empire), and regulated distribution to ~750k customers.
The catalyst — the $2.62B CenterPoint Ohio acquisition
- NFG is paying $2.62B for CenterPoint's Ohio LDC (335k customers, 5,900 miles of pipe) at ~1.6× its ~$1.6B 2026 rate base. On close (late 2026), total utility customers exceed 1M and the regulated rate base more than doubles to $3B+ — tilting the mix toward predictable, regulated cash flows and away from commodity-exposed upstream. "This pivot reduces exposure to gas-price volatility, effectively de-risking earnings."
Why Ohio — a constructive bet on regulated returns
- Management is betting regulated utilities in cold-weather markets with supportive regulators beat pure upstream production on risk-adjusted returns. Ohio checks the boxes: constructive commission, geographic proximity (less integration risk), Columbus–Cincinnati growth corridor. Strategically "about optionality" to expand the utility footprint on existing infrastructure.
Q1 FY2026 — a clean beat ahead of the close
- Adjusted EPS $2.06, +24% YoY, beating ~$1.99–2.00; GAAP $1.98/share vs $0.49 a year ago. Production 109 Bcf (+12%) on a +14% realized-price lift. FY26 guide reaffirmed $7.60–8.10 (midpoint $7.85, ~14% growth over FY25's $6.87); 15+ years of drilling inventory (added 220 Upper Utica locations in Q4 FY25).
The vertical-integration moat
- Owning every link — produce (Seneca), gather/process (National Fuel Midstream), transport/store (Empire + 2,800 miles of FERC-regulated pipe), distribute (the utilities) — captures margin at multiple points and lets NFG "move its own molecules to market." Tioga Pathway and Shippingport Lateral projects come online late 2026.
Tier-one upstream, hedged for visibility
- Tioga County Utica and Marcellus assets deliver high IP rates, low declines, good economics even at $3–4 gas; mid-single-digit growth target (3–7%), FY26 upstream capex $560–610M, 80 Bcf hedged — a "shock absorber" giving clearer FCF visibility.
Gabelli's endorsement and the data-center kicker
- Mario Gabelli (Barron's Roundtable) calls reserves near population centers underappreciated, sees ~$7 EPS this year / ~$9 next, a private market value "50% higher than the current price," and upside if utility analysts apply a 16× multiple to pro-forma utility earnings.
- The Shippingport Lateral ($100M+) provides 205,000 dekatherms/day of firm capacity to a data-center customer (~$15M/yr revenue) — "tangible evidence" of data-center power demand driving pipeline investment.
The risks — dilution, regulation, gas prices
- The deal is funded with $1.2B seller financing (6.5%, 364-day note), $300–400M equity and long-term debt; NFG already did a $350M equity raise (Dec 2025) and needs ~$1.5B more debt — "substantial leverage and dilution for a historically conservative balance sheet." Accretive to regulated EPS but neutral to consolidated results in FY28 before turning accretive.
- NY's climate goals are a long-term gas-utility headwind; permitting is harder, making NFG more M&A-dependent for midstream growth. The 11× multiple reflects perceived stranded-asset / carbon / political risk.
Valuation, technicals and the bottom line
- 11× earnings vs 15–20× for fossil-free utilities; 2.5% yield, 55-year increase streak, ~37% payout (room to keep raising). A breakout above multi-year resistance above the ~$75 range-expansion point, "but that gain has not been excessive… yet." Bull-case re-rate to $95–100+ near-term, low-$120s longer term. A modest-beta, value/income way to add discounted energy exposure — a 3–5-year market-beating compounder if execution delivers.
Portfolio housekeeping — SLB, AESI, EWY, EWJ
- AESI and SLB stay on the list, but trim SLB again after its rally (a volatile oil-service name). Sell EWY (Korea) entirely — better ways to play a still-bullish Asia view. Trim EWJ (Japan) again — the yen is very undervalued but the market is "equally extended."
3. In plain English
NFG — National Fuel Gas Positive
National Fuel Gas is an old, boring-in-a-good-way natural-gas company. What makes it unusual is that it owns the entire chain: it drills the gas out of the ground in Appalachia, runs it through its own pipelines and storage, and delivers it to about 750,000 homes through its own regulated utility. Owning every step means it earns a margin at each one and doesn't depend on anyone else to get its gas to customers. The stock is cheap — about 11 times earnings, while plain utility companies trade at 15–20 — and it has raised its dividend every year for 55 straight years.
The big news is a $2.6 billion deal to buy a gas utility in Ohio, which roughly doubles its steady, government-regulated business (regulated utilities earn slow but very predictable returns). That shifts the company away from volatile gas-price bets toward dependable cash flow — a deliberate de-risking. Two bonus angles: a new pipeline that sells capacity to a power-hungry data center (the AI build-out needs reliable gas-fired electricity), and a public endorsement from famed investor Mario Gabelli, who thinks the company is worth 50% more than its current price. The risks are that the acquisition requires taking on a lot of new debt and issuing shares (diluting owners), New York's anti-fossil-fuel policies are a long-term drag, and the thesis assumes gas stays around $3–4. Haymaker frames it as a slow, steady 3–5-year compounder for value- and income-minded investors, with a re-rating to $95–100+ near-term and possibly the low $120s later.
SLB — Schlumberger Negative (trim)
Schlumberger is the biggest oilfield-services company — the firms that drill and service wells for oil and gas producers. It was the standout winner of Haymaker's December "tax-loss" basket (beaten-down stocks bought near year-end). After a strong rally Haymaker says to take some money off the table ("another trim"), because oil-service stocks are very volatile and swing hard. This is a trim to lock in gains, not a call that the company is in trouble.
EWY — iShares South Korea ETF Negative (sell)
EWY is a fund that holds a basket of South Korean stocks. Haymaker is making a rare full-exit call: sell it entirely. The reasoning isn't that Asia is unattractive — Haymaker is still bullish on the region — but that there are better vehicles to express that view than Korea. (For Japan, via the EWJ fund, it instead just suggests trimming: the yen is still cheap, but the Japanese stock market has run up a lot.)
Summary derived from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.