Title: Friday POW! — Pick of the Week: National Fuel Gas (NFG) Source: Haymaker — Friday POW! Author: David Hay (The Haymaker Team) Date: 2026-FEB-27 (post dated FEB 27, 2026) URL: https://haymaker.substack.com/p/friday-pow-ef5 Length: written post (PAID), no timestamps Note: Verbatim article text below (written newsletter — no spoken fillers to strip). Includes a recap of the Dec-1-2025 "tax-loss-selling package" trade. Embedded images (not saved): an adjusted-EPS history chart (FY2016-2025) and a 5-year NFG price chart with overhead resistance, plus the image-only "Recommended List" table whose tickers are NOT text-readable (so portfolio.json is unchanged). The tax-loss-package recap names SLB, AESI, NVO, EWY and EWJ in text. A Barron's Roundtable quote from Mario Gabelli on NFG is reproduced as-is. ================================================================ "Value investing works because it's difficult." -Seth Klarman, Hedge Fund Manager Friday Pick of the Week (POW) — National Fuel Gas (NFG) Before we get into the details on this week's POW!, we wanted to advise you we are closing out our suggestion to buy a package of tax-loss selling victims. We brought those to your attention in early December of last year. This is a time-honored method to produce solid returns in a short-period of time, capitalizing on the selling crescendo that often occurs with poorly performing stocks toward year-end. At the bottom of this note, available only to our paying subscribers, is a recap of how those performed. As we've admitted, we whiffed last month when we failed to suggest taking a gain on Novo Nordisk (NVO), after it ran up roughly 30% in less than 60 days. Hopefully, some of you took at least partial profits on that move. For those who didn't, the reversal of fortune has been costly. Regardless, please see the summary of this packaged trade at the end of this note. It's definitely not a bad news story, despite the NVO flub. TLDR* summary: - Business model in a nutshell: Vertically integrated natural gas company with transformational Ohio-based acquisition - Recent catalyst: $2.6B CenterPoint Ohio deal announced October 2025, doubles utility business - Latest results: Q1 FY2026 beat with $2.06 earnings per share (EPS) (up 24% YoY), reaffirmed $7.60 - $8.10 guidance (14% growth) - Competitive moat: Vertical integration across the value chain (produce → gather → transport → distribute) - Growth drivers: CenterPoint acquisition, Appalachian production growth, data center pipeline demand - Risks: M&A execution/dilution, low natural gas prices, regulatory/political headwinds, energy transition narrative - Balance sheet: Clean but getting more levered post-acquisition (~1.75x net debt/EBITDA target) - Valuation: 11x FY2026 earnings, analyst targets $95-$101 (10-18% upside), 2.5% dividend yield, 55-year dividend streak - Technical profile: attractive, based on a key breakout in March of last year. - Bull-case math: If they execute and gas stays $3-4, stock re-rates to $95-$100+ near-term, potentially low $120s longer term - Risk/reward assessment: Steady compounder with M&A kicker, positioned for 3- to 5-year market-beating run if execution delivers *The Haymaker antidote to "Too Long, Didn't Read" National Fuel Gas (NFG) National Fuel Gas has been around for over a century, quietly moving gas from the ground in Appalachia to homes in western New York and Pennsylvania. In a nutshell, it is a vertically integrated natural gas company operating across the entire value chain: upstream production in the Appalachian Basin, midstream gathering and processing, interstate pipeline transportation and storage, and regulated distribution to roughly 750,000 utility customers in western New York and northwestern Pennsylvania. The company just announced a transformational $2.62 billion acquisition of CenterPoint Energy's Ohio gas utility that doubles its regulated business and represents a strategic pivot toward stable earnings growth. The October 2025 acquisition announcement caught the market's attention for good reason. National Fuel is paying $2.62 billion for CenterPoint's Ohio LDC (local distribution company), which serves 335,000 customers and operates 5,900 miles of distribution and transmission pipeline. The deal values the Ohio utility at roughly 1.6x its estimated 2026 rate base of $1.6 billion. When the transaction is finalized in late 2026, National Fuel's total utility customer count will exceed one million, and its regulated utility rate base will more than double from approximately $1.6 billion to over $3 billion. This seriously reshapes the company's earnings mix, tilting it more heavily toward predictable, regulated cash flows and away from commodity-exposed upstream production. Haymaker readers should note that this pivot reduces exposure to gas-price volatility, effectively de-risking earnings in a historically cyclical sector. The Ohio acquisition clearly signals where management thinks the future lies. National Fuel is betting that regulated utilities in cold-weather markets with supportive regulatory frameworks represent better risk-adjusted returns than pure upstream gas production. Ohio checks the boxes of a favorable regulatory environment with constructive utility commission, geographic proximity to existing operations (reducing integration complexity), and positioned between Columbus and Cincinnati where population and industrial growth trends suggest future opportunities for infrastructure investment. Strategically, this is about optionality because if NFG can expand the utility footprint while leveraging existing infrastructure, it limits integration risk. Fiscal Q1 2026 results (quarter ended December 31, 2025, reported January 28, 2026) showed the core business performing solidly ahead of the acquisition close. Adjusted earnings came in at $2.06/share, up 24% year-over-year and beating consensus estimates around $1.99-$2.00. This beat validates NFG's operational discipline and hedging strategy, even with muted natural gas prices, which is a key signal that management is getting maximum value from existing assets. The company also reported GAAP earnings of $181.6 million or $1.98/share, compared to $45 million or $0.49/share in the prior year period. Natural gas production from the Tioga County Utica and Marcellus plays hit 109 Bcf in Q1, up 12% year-over-year, and a 14% increase in realized natural gas prices drove the outperformance. Management reaffirmed full-year fiscal 2026 guidance of $7.60-$8.10 adjusted EPS (midpoint $7.85), which implies roughly 14% growth over fiscal 2025's $6.87. From a valuation perspective, these numbers could support re-rating if this kind of execution continues. The company maintains over 15 years of drilling inventory in its Eastern Development Area, having added 220 new Upper Utica locations in Q4 FY2025 alone. As you can see, its adjusted EPS growth history has been quite impressive (this calculation smooths out the fluctuations in natural gas prices and the related impact on profits). Also apparent, in addition to earnings having more than doubled since 2016, is that the down years have seen modest declines. This tends to lead to superior risk-adjusted returns. [Image: Adjusted EPS History (Fiscal Years 2016-2025)] NFG controlling multiple supply-chain points is its main structural advantage. It produces gas through Seneca Resources, its Exploration and Production subsidiary, gathers and processes it through National Fuel Midstream, transports it via Empire Pipeline and National Fuel Gas Supply Corporation's 2,800 miles of FERC-regulated interstate pipeline, stores it in underground facilities, and delivers it to end customers through its regulated utilities. This captures margin at multiple points and reduces risk since National Fuel can move its own molecules to market through its own infrastructure. Two significant expansion projects are underway: the Tioga Pathway Project and the Shippingport Lateral Project, both targeting late calendar 2026 in-service dates. NFG's upstream business centers on Appalachian production, specifically the Tioga County Utica and Marcellus formations in Pennsylvania. These are tier-one assets delivering high initial-production rates, low decline curves, and attractive well economics even in a $3-$4 natural gas environment. Management targets mid-single-digit production growth (3-7% annually) with disciplined capital allocation. Fiscal 2026 upstream capex is guided to $560-$610 million and the company has hedged 80 Bcf of production for fiscal 2026, protecting downside while preserving upside if prices rally. This hedging is important because it acts like an earnings "shock absorber," giving investors a clearer line of sight into free cash flow. In a recent Barron's Roundtable article, the legendary money manager Mario Gabelli had this to say about NFG, one of his favorite holdings (Haymaker emphasis added): "The value of gas reserves strategically located near population centers is underappreciated. NFG can use increasing levels of free cash flow to invest in the regulated utility business or split up the company. NFG is expected to earn $7 a share in this fiscal year. It could earn $9 a share the following year. We put the company's private market value at 50% higher than the current price. If analysts who follow utility stocks put a 16 multiple on NFG's pro forma utility earnings, the stock will trade even higher." The Shippingport Lateral is one of the more intriguing parts of NFG's story because it's a $100+ million investment providing 205,000 dekatherms per day (enough to power over 2,000 homes for over a year) of firm transportation capacity to a data center customer, generating approximately $15 million in annual revenue. This represents tangible evidence of how data-center power demand (requiring reliable baseload generation fueled by natural gas) is driving pipeline infrastructure investment. Let's take a look at some of the potential pitfalls that could lead to lackluster performance for NFG. The Ohio acquisition, while promising, also comes along with meaningful execution risk and near-term dilution. National Fuel is funding the $2.62 billion purchase through $1.2 billion in seller financing (a promissory note at 6.5% interest maturing 364 days post-close), $300-400 million of common equity, and long-term debt issuance. The company already completed a $350 million equity raise in December 2025, and will need to issue approximately $1.5 billion in long-term debt for acquisition and refinancing needs. This represents substantial leverage and equity dilution for a historically conservative balance sheet. Management projects the acquisition will be immediately accretive to regulated EPS (excluding transaction costs) and neutral to consolidated adjusted operating results in fiscal 2028 (the first full year post-close) before turning accretive thereafter. Integration risk, regulatory approval requirements (Ohio Public Utilities Commission must approve), and uncertainty around whether the 1.6x rate base multiple proves appropriate, all create potential downside scenarios. While we continue to be bullish on the prospects for natural gas infrastructure, it's important to note that the regulatory and political risk is real and growing. New York has aggressive climate goals and explicit policy objectives to reduce reliance on fossil fuels, creating long-term headwinds for gas utilities. Pennsylvania remains more gas-friendly, but environmental opposition to pipelines and drilling is still something to contend with. The Tioga Pathway and Shippingport Lateral projects received FERC authorization, but future pipeline development faces increasing permitting challenges. This limits National Fuel's ability to grow its midstream business organically, making the company more dependent on M&A for growth. Muted expectations, despite a compelling fundamental story are reflected in NFG's low multiple. The stock trades at 11x earnings while pure regulated utilities without fossil fuel exposure command 15-20x. The market is likely pricing in some probability of stranded asset risk, carbon regulation, or political pressure eventually diminishing the value of gas pipelines and distribution networks. In addition to its very modest P/E, NFG's dividend yield sits around 2.5% with a 55-year streak of consecutive annual increases and a payout ratio near 37% based on fiscal 2025 results. That low payout percentage strongly suggests its dividend-boosting streak will continue well into the future. Technically, NFG is the type of situation we like to see: a breakout above multi-year overhead resistance. This jives with earnings making new highs and projected to continue that pattern. It is above its critical upside range expansion point of around $75 but that gain has not been excessive… yet. [Image: Five-Year NFG Price Chart with overhead resistance displayed — Bloomberg] To sum this up, the investment case here is for investors seeking a steady compounder that's also making a transformational bet on regulated growth. The base business generates mid-single-digit production growth, stable regulated utility earnings, and consistent free cash flow. The CenterPoint acquisition doubles the regulated business and provides a platform for future growth in a constructive regulatory jurisdiction. If this pick becomes a winner, it's likely because: (1) natural gas remains essential to America's acute need for additional electricity production, as we fully anticipate; (2) National Fuel integrates a $2.6 billion acquisition without materially damaging its returns on capital (questionable but very possible), and (3) Appalachian gas economics stay attractive at $3-$4 NYMEX prices (probably the biggest wild card). Since NFG carries modest beta/volatility, we'd recommend it more for value- and income-oriented investors looking to add discounted energy exposure to their portfolios. Summary of tax loss package trade highlighted on December 1st, 2025: Despite letting NVO flip from a 30% gain into a 23% loss, the winners outweighed the losers by about 41% (thank you, SLB!). That's about an 8.6% return in approximately two months or around 103% annualized. The S&P is essentially flat over this timeframe. For AESI and SLB, those are staying on our recommended list at this time. However, we would suggest another trim on SLB after its muscular rally. This is a highly volatile name, as are most oil service companies. We are also recommending a sale of EWY (S. Korea). It's rare we propose a complete exit but in this case we think there are better ways to express a bullish outlook on Asia, which we continue to have. In the case of EWJ (Japan), we feel another trim is in order. The yen remains extremely undervalued but the Japanese market itself appears equally extended to the upside. The Haymaker Team Recommended List — SB: Strong Buy | B: Buy | H: Hold | T: Trim | S: Sell [Recommended List renders as an image — tickers not text-readable; portfolio.json unchanged.]