Rising Electricity Rates Brighten NorthWestern Corp.'s Earnings

| About: NorthWestern Corporation (NWE)

NorthWestern Corporation (NYSE:NWE) raised 2008 guidance in October as electricity rates have risen compared to 2007. The company currently pays a dividend with a solid 6.00% yield. It is trading with a forward P/E of 11.

Company Description

NorthWestern Energy provides electricity and natural gas to the Upper Midwest and Northwest. The company services over 640,000 customers in Montana, South Dakota and Nebraska.

NWE Beat Wall Street Estimates for the Third Quarter by 20.69%

On Oct 30, NorthWestern reported third quarter earnings that surprised on Wall Street estimates by 6 cents per share. Net income rose 1.5% to $13.4 million, or 35 cents per share, from $13.2 million, or 35 cents per share, in the third quarter 2007. Analysts were expecting 29 cents.

Gross margin on regulated electric rose 2.7% in the third quarter to $94.7 million from $92.2 million in 2007, mainly due to a rate increase.

Volumes in the regulated retail electric segments fell 1.5% because of cooler summer weather over the third quarter of 2007.

Gross margin for regulated natural gas increased to $22.8 million from $20.8 million in the third quarter of 2007 due to rate increases and higher volumes as customer volume grew 1.0%.

NorthWestern Has Cash

NWE finds itself in an enviable position during this credit crisis, as the company had cash and cash equivalents of $8.6 million at the end of Sep 30, 2008. That is up from $4.7 million at the end of Sep 30, 2007.

The company also had a $120.3 million revolver available at the end of September compared with $156.6 million a year ago. The decrease was the result of a $78 million share buyback that was completed in the third quarter.

2008 Guidance Increased

NorthWestern is bullish about the remainder of the year as the company raised full year 2008 guidance to the range of $1.65 to $1.80 from $1.60 to $1.75 it reported on July 31. The forecast assumes normal weather in the company's electric and natural gas service territories for the fourth quarter of 2008.

Consensus Estimates Rise

After the solid third quarter, covering analysts have been raising 2008 and 2009 estimates. Consensus estimates for 2008 rose 4 cents to $1.81 per share in the last month. 2009 consensus estimates jumped 17 cents to $2.00 per share in the last 30 days.

Analysts project 5-year earnings growth of 10%.

Value Fundamentals

NorthWestern is a Zacks #1 Rank (strong buy) stock. It has surprised on estimates 2 out of the last 4 quarters by an average of 23.77%.

NWE is trading at 11x forward earnings. It has a price-to-book of 1.04. As an added bonus, it pays a dividend with a current yield of 6.00%.