ONE Gas, Inc. (OGS) stock intrinsic value fair value estimate & owner earnings analysis

ONE Gas is a regulated natural gas distributor serving about 2.3 million customers in Oklahoma, Kansas and Texas through Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service. Regulators set its rates so it can earn a return on the pipe and equipment it invests in. The cost of the gas itself is passed through to customers, so revenue swings with gas prices (2025 revenue $2.43 billion, 2024 $2.08 billion) while earnings move far less. Authorized returns on equity are 9.6% in Kansas and 9.8% in Texas. How we measured earnings. We start from operating cash flow, remove swings in working capital, and subtract stock compensation. The February 2021 Winter Storm Uri gas bill (about $2 billion deferred to customers) hugely distorted cash flow in 2021 to 2023: operating cash flow was negative $1.5 billion in 2021, then $1.57 billion in 2022 when securitization bond proceeds arrived. We removed both the deferral and the recovery, so those years reflect ordinary operations. Cost of removing old pipe (about $52 million in 2025) is treated as a real, recurring cost. Capital spending is about $700 million a year, more than twice depreciation of $317 million. A mechanical split between growth and upkeep spending would treat almost all of it as upkeep and make earnings negative every year, which does not describe a rate-regulated utility, so we treated depreciation as the cost of standing still and the rest as investment that earns the allowed return. That is our judgement, and it drives the result. On this basis earnings per share were $2.36 in 2019, $3.49 in 2020, $3.91 in 2021, $2.92 in 2022, $3.65 in 2023, $4.86 in 2024 and $4.46 in 2025. Our starting level is $3.91, the middle of 2021 to 2025, which is below 2025 because the 2024 and 2025 figures are the highest in the series. Growth. Earnings per share growth in 2025 was down 8% from 2024. Our base case starts 2026 at $3.91, about 12% below the 2025 level, so year 1 is not assumed to rebound. From year 2 we credit 3% a year for nine years. The evidence: net income rose from $163 million in 2017 to $264 million in 2025, and earnings per share grew roughly 3.7% a year from 2019 to 2025 even while the company issued shares ($212 million in 2025, $252 million in 2024) to fund pipe replacement. Spending on replacement is recovered through rate mechanisms in all three states (Oklahoma's annual review, Kansas GSRS, Texas GRIP). We credit less than the demonstrated pace and none of it from new markets or higher allowed returns. After year 10 we assume earnings hold flat, since nothing beyond the existing franchise is evidenced. Base value: about $80 per share. Bear case: about $50. Regulators give less than requested and the gap keeps costing shareholders. In Texas, the June 2025 rate request was $41.1 million; the judge recommended $14.5 million (effective January 2026). Debt is heavy (about $2.6 billion of long-term debt; cash interest $139 million in 2025 versus $49 million in 2018), and new shares keep being issued. Earnings per share sit at about $3.00 with no growth for the whole period and thereafter. Bull case: about $98. 2025's $4.46 is treated as the starting level and grows 4% a year for nine years, in line with the 3.7% to 4.5% per-share growth of 2017 to 2025, then flat. What would make this wrong: a large gas-supply event like Uri that regulators leave with shareholders, or a rate case that cuts allowed returns. Oklahoma Natural Gas must file a rate case by June 30, 2027. We could not verify results after the fiscal 2025 annual report (the second-quarter 2026 filing text was unavailable), so 2026 developments are not reflected. The margin-of-safety price is $45, below the bear case, because a regulated utility is stable but its value is sensitive to allowed returns and financing costs.