Executive Summary / Key Takeaways

• Chesapeake Utilities Corporation ($CPK) is executing a robust growth strategy, leveraging its stable regulated energy foundation and expanding into high-growth unregulated segments, particularly in natural gas distribution, transmission, and renewable natural gas (RNG) services across the Delmarva Peninsula and Florida.
• The company reaffirmed its full-year 2025 adjusted EPS guidance of $6.15 to $6.35, representing a projected 14% to 16% growth over 2024, significantly outpacing industry averages. This outlook is underpinned by substantial capital investments and successful regulatory outcomes.
• CPK is accelerating its capital deployment, increasing its 2025 capital expenditure guidance to $425 million to $450 million, with a five-year plan of $1.5 billion to $1.8 billion through 2028, largely de-risked by projects requiring no additional regulatory approval.
• Technological differentiators, such as its virtual pipeline fleet for compressed natural gas (CNG), liquefied natural gas (LNG), and RNG, alongside strategic investments in RNG production facilities, are driving growth in its unregulated segment and enhancing system reliability.
• Key risks include the final outcome of the Florida City Gas (FCG) depreciation study and potential impacts from broader economic conditions and tariffs, though management expresses confidence in mitigation strategies and long-term recovery.

A Foundation of Growth: Chesapeake Utilities' Strategic Energy Delivery

Chesapeake Utilities Corporation, established in 1859 and incorporated in 1947, has evolved into a diversified energy delivery company with a clear strategic focus: to grow earnings from a stable regulated energy base while investing in related unregulated businesses that offer superior returns. The company's operations span natural gas distribution and transmission, electric distribution, propane distribution, and mobile CNG, LNG, and RNG transportation services across the Mid-Atlantic region, North Carolina, South Carolina, Florida, and Ohio. This dual-segment approach allows CPK to capitalize on the predictable cash flows of regulated utilities while pursuing higher-growth opportunities in the evolving energy landscape.

A pivotal moment in CPK's recent history was the acquisition of Florida City Gas (FCG) in November 2023, which expanded its asset base by nearly 50% and provided significant growth avenues in Southern Florida. This integration was largely successful, with FCG operations contributing nearly $89 million in adjusted gross margin in 2024. The company's strategic blueprint rests on three pillars: prudent capital deployment, proactive regulatory management, and continuous business transformation.

The broader energy industry is experiencing dynamic shifts, notably the surging power demands from data centers, particularly in regions like Ohio, which has become a significant hub for this growth. This trend, coupled with ongoing population growth in CPK's core service territories, fuels the demand for new energy infrastructure and diversified energy solutions. For instance, the Delmarva Peninsula and Florida continue to exhibit above-average residential customer growth, with Delmarva seeing approximately 4.3% and Florida Public Utilities 3.9% for the three months ended September 30, 2025. These macro trends create a fertile ground for CPK's expansion strategy.

Competitive Positioning and Technological Edge

Chesapeake Utilities operates within a competitive landscape that includes larger, more diversified utilities and specialized regional players. Direct competitors such as Atmos Energy Corporation (ATO), ONE Gas, Inc. (OGS), Spire Inc. (SR), and Duke Energy Corporation present varying competitive dynamics. While larger entities like Duke Energy (DUK) benefit from superior scale and broader resources, CPK distinguishes itself through its regional adaptability, customer-centric approach, and a diversified service portfolio that includes both regulated and unregulated offerings.

CPK's market positioning leverages its long history and established regulatory licenses, which act as significant barriers to entry and contribute to stable demand and recurring revenue streams. This regulatory moat provides a distinct advantage over competitors focused solely on unregulated markets, allowing CPK to maintain stronger customer loyalty and potentially better pricing power in protected areas. However, CPK's smaller scale compared to industry giants like DUK can lead to higher operational costs and potentially lower margins, making it challenging to compete on price in certain segments.

A key technological differentiator for Chesapeake Utilities is its robust virtual pipeline fleet operated by Marlin Gas Services. This technology enables the transportation of CNG, LNG, and RNG to customers off its traditional pipeline system, providing flexible and responsive energy solutions. The tangible benefits include increased gas supply to serve expected growth, strengthened system reliability, and enhanced system flexibility, particularly for bringing renewable natural gas from local landfills into distribution systems. For instance, the company's RNG supply projects are projected to generate total adjusted gross margin of approximately $2.50 million in 2025 and $5.40 million annually thereafter. This capability allows CPK to meet niche demands and expand its reach beyond fixed infrastructure, a competitive edge against more traditional utility models.

Furthermore, CPK is actively investing in sustainable energy solutions, including the construction and operation of dairy manure RNG facilities like Full Circle Dairy. These initiatives not only align with environmental stewardship but also contribute directly to the unregulated segment's adjusted gross margin, with CNG, RNG, and LNG services projected to generate approximately $25.50 million in 2025 and $26.50 million in 2026. The company's multi-year enterprise resource planning (ERP) project, with an initial investment of approximately $15 million in 2025, represents a significant technological undertaking aimed at improving asset management, supply chain, human resources, accounting, and finance functions. This transformation is crucial for enhancing operational efficiency and scalability as CPK continues its growth trajectory.

Financial Performance: A Trajectory of Double-Digit Growth

Chesapeake Utilities has demonstrated strong financial performance, particularly in the nine months ended September 30, 2025. The company reported adjusted net income of $94.9 million, or $4.06 per share, representing a 12.7% increase over the same period in 2024, excluding FCG transaction and transition-related expenses. Adjusted gross margin for the nine months ended September 30, 2025, reached $462.4 million, an increase of $49.3 million or 9.9% from the prior year.

The Regulated Energy segment was a primary driver of this growth, with adjusted gross margin increasing by $36.5 million (7.5%) to $360.5 million for the nine months ended September 30, 2025. This was largely due to incremental margin from regulatory initiatives, infrastructure programs, pipeline expansion projects, and organic growth in natural gas distribution. Operating income for this segment rose by 13% to $161.2 million for the nine-month period. The Unregulated Energy segment also contributed significantly, with adjusted gross margin increasing by $12.7 million (9.9%) to $101.9 million, primarily from higher CNG, RNG, and LNG services and improved performance from Aspire Energy.

Despite these gains, operating expenses in the Regulated Energy segment increased, notably due to higher depreciation from growth projects and the absence of an $8.9 million RSAM adjustment benefit recorded in the prior-year period. Interest charges also rose by $3.2 million for the nine months ended September 30, 2025, driven by new Senior Notes issuances, partially offset by lower average outstanding Revolver borrowings. The company's profitability metrics remain robust, with a trailing twelve-month (TTM) Gross Profit Margin of 33.01%, Operating Profit Margin of 28.10%, and Net Profit Margin of 14.77%.

Capital Deployment and Liquidity

CPK's capital requirements are substantial, reflecting the capital-intensive nature of its utility businesses and its aggressive growth strategy. For the nine months ended September 30, 2025, capital expenditures totaled $335.6 million. The company has increased its 2025 full-year capital expenditure guidance to $425 million to $450 million, reflecting accelerated investment in natural gas transmission and distribution, as well as initial spending on its ERP project and Eastern Shore natural gas system improvements. This significant investment pace, exceeding $1 million per day, underscores the company's commitment to expanding its infrastructure and meeting growing energy demand.

The company maintains a strong balance sheet and robust liquidity to support its growth. As of September 30, 2025, CPK's equity capitalization stood at 49%, nearing its target range of 50% to 60% of total capitalization. Over the last twelve months, $92 million of new equity was issued through its Dividend Reinvestment and Direct Stock Purchase Plan (DRIP) and At-the-Market (ATM) program. In August and September 2025, CPK issued $200 million in Senior Notes at an average interest rate of 5.04%, using the proceeds to reduce short-term borrowings and fund capital expenditures. The company also has $305 million of borrowing capacity available under its Shelf Agreements with Prudential and MetLife. Total available credit under its Revolver was $349.9 million as of September 30, 2025. This disciplined approach to financing ensures CPK can fund its capital plan while maintaining an investment-grade credit profile, as evidenced by Fitch Ratings' inaugural BBB+ rating in March 2025.

Outlook and Guidance: Reaching New Heights

Chesapeake Utilities has reaffirmed its full-year 2025 adjusted EPS guidance of $6.15 to $6.35 per share. This guidance anticipates a successful outcome in the FCG depreciation study, where the company is seeking a two-year amortization of a $19 million excess depreciation reserve. Management is confident in its filing and is prepared to pursue a rate case next year if the depreciation study outcome is less favorable. The projected EPS growth rate of 14% to 16% over 2024 is notably higher than industry averages, reflecting the impact of strategic acquisitions, capital investments, and regulatory successes.

The company's five-year capital investment plan of $1.5 billion to $1.8 billion through 2028 is well underway, with at least $1.4 billion already identified. A significant advantage is that over 70% of this identified capital requires no additional regulatory approval, de-risking a substantial portion of future growth. Key projects, such as the Worcester Resiliency Upgrade (WRU) LNG storage facility, despite a $20 million cost increase and a delayed in-service date to mid-2026, received FERC approval for cost recovery. Management believes it can operationally manage the temporary margin impact from the WRU delay through other growth drivers.

CPK's dividend policy remains a core component of its capital allocation strategy, aiming for a payout ratio of 45% to 50%. The annualized dividend per share of $2.74 reflects a 7% annual increase from 2024, supporting a long-term dividend CAGR of 9%. This strategy allows for both consistent dividend growth and significant earnings reinvestment, driving long-term shareholder value.

Risks and Challenges

While CPK's growth trajectory is compelling, investors should consider several key risks. The outcome of the FCG depreciation study is a critical factor for 2025 earnings, with the timing and approved amortization period directly impacting results. Any less favorable outcome could necessitate a rate case filing in 2026, potentially delaying full recovery.

Broader macroeconomic factors, including tariffs, could increase the cost of materials and equipment, disrupt supply chains, and introduce economic volatility. While CPK has experienced few direct issues related to tariffs thus far, the uncertainty could impact project costs and timelines. The WRU project's cost increase and delay due to labor availability and economic climate underscore these sensitivities. However, management's proactive approach to seeking rate adjustments for cost recovery and leveraging operational flexibility to manage delays provides a degree of mitigation.

Conclusion

Chesapeake Utilities Corporation stands as a compelling investment opportunity, demonstrating a clear and effective strategy for growth in the dynamic energy sector. Its dual-segment business model, combining stable regulated operations with high-growth unregulated ventures, positions it uniquely to capitalize on increasing energy demand and evolving market trends. The company's commitment to prudent capital deployment, proactive regulatory engagement, and continuous business transformation, including significant technological investments in virtual pipelines and ERP systems, forms a robust foundation for sustained performance.

With reaffirmed double-digit EPS growth guidance for 2025 and a substantial, de-risked capital investment plan through 2028, CPK is poised to deliver strong shareholder returns. While challenges such as regulatory outcomes and macroeconomic pressures exist, management's proven ability to adapt and mitigate risks, coupled with its disciplined financial strategy, reinforces the investment thesis. Chesapeake Utilities is not merely expanding its footprint; it is strategically enhancing its capabilities and technological edge to meet future energy needs, ensuring long-term value creation for its stakeholders.