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Sometimes, great investment opportunities can be hard to find, and El Paso Electric Company (EE) is no exception. Based in El Paso, Texas, this small cap utility provides electric power to just fewer than 400,000 customers, primarily in El Paso and Las Cruces, New Mexico. Its market capitalization is quite low, at only $1.45 billion.

In this article, I will be looking at EE's growth in recent years, its valuation and the amount of money it returns to its investors.

Growth in recent years: slow and steady

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El Paso is slowly growing its number of customers. Between 2009 and 2013, it has gained an average of around 5,000 customers per year. Even though growth of just over 1% can hardly be called impressive, it is growth. When we look at EE's revenue, we see pretty much the same - there is some growth, but it is in the low single digits. There's not too much change here, making it a very predictable stock. In the past ten years, revenue has gone up by 28.5%. Net income was a bit more impressive, going up by 50% in the same time frame.

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Earnings per share growth has been a lot more impressive, almost doubling between 2003 and 2012 (from $1.23 to $2.26). A large part of the EPS growth is due to the share repurchases EE regularly does. We can also see from this next graph that EE has started paying dividends in 2011.

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Giving back money to shareholders: a reasonable dividend and impressive share repurchases

On the 9th of May, 2013, El Paso Electric announced it would raise the dividend to $0.265 per share. At the current price per share of $36.14, this gives it a dividend yield of 2.93%. Analysts estimate EE's EPS to reach $2.43 in 2013, which would give it a payout ratio of only 43.6%.

Along with the very reasonable dividend, EE has another way of transferring money to its shareholders - share repurchases. With each share EE repurchases, the value of the remaining rises, as it represents a larger part of the company. Between 2003 and 2012, El Paso Electric has reduced its number of shares from 49 million to 40 million.

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Short-term financial strength: looking good

To determine if EE will be able to meet its short-term obligations, I have compared its current assets to its current liabilities. As we can see from the graph below, current assets have been higher than current liabilities in each of the last 5 years, except for 2011, when the current ratio (current assets divided by current liabilities) reached 0.84. I don't see this as a big problem, as it had already bounced back up to 1.62 in the following year.

EE's management is quite positive about its liquidity, as can be read in its first quarter results press release:

"At March 31, 2013, we had a balance of $43.7 million in cash and cash equivalents. We believe that we will have adequate liquidity through our current cash balances, cash from operations, and our revolving credit facility to meet all of our anticipated cash requirements through 2013 based on current projections."

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Valuation: Not as cheap as it used to be

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At today's price, EE has a price to earnings ratio of 15.2. While this is slightly higher than it has been in recent years, I feel that this valuation is more than fair considering the expected growth in earnings. The growth in revenue, net income and number of customers gives me a lot of confidence in this company's future. Share repurchases will increase my ownership in this company without having to invest additional funds, and the dividend of just under 3% seems very sustainable, with a low payout ratio. All in all, I think El Paso Electric Company would be a great way to balance my portfolio of large-cap stocks.

Source: El Paso Electric: A Small-Cap Company With Great Returns