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The utility sector consists of electric and gas companies that require significant infrastructure and the need for capital to grow. In order to attain capital and manage the debt load it is important that these companies have strong fundamentals. We decided to focus on 2 important fundamental statistics, namely, top-line growth, and inventory trends.

To create the list below we screened a list of over 100 utility stocks for strong sales trends, comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables, the healthier the company's revenue.

We screened for stocks seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.

Finally, we looked for those stocks with faster growth in revenue than inventory over the last year. Since inventory represents the portion of goods not yet sold, faster growth in revenue than inventory is considered an encouraging sign.

The List:

We were left with 3 companies on our list. All have encouraging accounting trends. Do these strong fundamentals encourage you to invest? Use the list below as a staring point of your analysis.

Click play below for the change in quarterly sales of the three utility companies on our list.

1. AmeriGas Partners LP (APU): Operates as a retail and wholesale distributor of propane gas in the United States.

  • Market cap at $4.16B, most recent closing price at $43.70.
  • Revenue grew by 28.2% during the most recent quarter ($876.65M vs. $683.81M y/y). Accounts receivable grew by 21.84% during the same time period ($379.18M vs. $311.21M y/y). Receivables, as a percentage of current assets, decreased from 57.17% to 54.53% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • Inventory grew by 9.01% during the same time period ($174.41M vs. $160M y/y). Inventory, as a percentage of current assets, decreased from 29.39% to 25.08% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • The bad news: In one month (since 3/15/13) APU has returned 0.0% and is one of the worst performing stocks in its industry. The stock is falling behind companies like National Grid plc (NGG) and Sempra Energy (SRE), which returned 9.74% and 5.15% during the same time period. Furthermore, the company's earnings growth looks weak, with EPS growing by -104.89% over the last year.

2. Dominion Resources, Inc. (D): Engages in producing and transporting energy in the United States.

  • Market cap at $34.59B, most recent closing price at $60.12
  • Revenue grew by 1.21% during the most recent quarter ($3,167M vs. $3,129M y/y). Accounts receivable grew by -15.63% during the same time period ($1,717M vs. $2,035M y/y). Receivables, as a percentage of current assets, decreased from 37.48% to 33.4% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • Inventory grew by -6.6% during the same time period ($1,259M vs. $1,348M y/y). Inventory, as a percentage of current assets, decreased from 24.83% to 24.49% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • EPS grew by -77.36% over the last year. This is considerably weaker than competitors, but D has a higher than average projected earnings growth rate over the next 5 years (6.84%). This is higher than the likes of Duke Energy Corporation (projected EPS growth over next 5 years at 4.03%) and American Electric Power Co., Inc. (projected EPS growth over next 5 years at 3.86%).

3. Vectren Corporation (VVC): Provides energy delivery services to residential, commercial, and industrial and other customers in Indiana and west central Ohio.

  • Market cap at $3.04B, most recent closing price at $36.79.
  • Revenue grew by 2.66% during the most recent quarter ($644.1M vs. $627.4M y/y). Accounts receivable grew by -2.08% during the same time period ($216.7M vs. $221.3M y/y). Receivables, as a percentage of current assets, decreased from 36.28% to 31.94% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • Inventory grew by -2.04% during the same time period ($158.6M vs. $161.9M y/y). Inventory, as a percentage of current assets, decreased from 26.54% to 23.38% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • Vectren reported strong earnings growth over the last year, with EPS growing by 11.88%, higher than competitors like Northeast Utilities (EPS growth over the last year at -14.77%) and CenterPoint Energy, Inc. (EPS growth over the last year at -46.0%).

*Accounting data sourced from Google Finance, EPS from Yahoo! Finance, all other data sourced from Finviz.

Source: 3 Utility Stocks With Encouraging Accounting Trends