A Bright Future Maintains PPL's Status As A Good Buy

| About: PPL Corporation (PPL)

PPL Corp. (NYSE:PPL) is among the leading utility companies of the U.S., with annual revenues in excess of $12 billion. The company offers stable earnings, as a significant portion of the company's earnings are earned from regulated operations. PPL has been undertaking initiatives to expand its regulated operations, and it is expected that by 2014, regulated operations will contribute approximately 85% to the company's total earnings. Also, the company is expected to experience a rate base growth of approximately 8% in the long term, which will have a positive impact on PPL's future earnings. Moreover, the company has attractive valuations, a higher profit margin and a solid dividend yield of 4.8% in comparison to its peers. Due to the abovementioned reasons, I reiterate my bullish stance on the stock.

Financial Performance
PPL has delivered a satisfactory financial performance in the past. Recently, PPL posted mixed financial results for Q3 2013. The company reported an operating EPS of $0.66 in Q3 2013, missing consensus estimates of $0.68, down from $0.72 in Q3 2012. The company's bottom line results for the recent third quarter were adversely affected by weak results at its supply segment, partially offset by earnings improvement at the company's regulated segment. The company's supply segment experienced an EPS decrease of $0.12 to $0.14 in the recent third quarter. Earnings of the company's Supply segment were adversely affected by non-cash adjustments of $0.07 per share, a higher operating and maintenance expenditure of $0.02 per share and a share dilution of $0.01 per share. PPL's regulated operations displayed healthy financial results for the quarter, as PPL's Electric Utility segment's EPS increased to $0.08 in the recent third quarter, representing an increase of $0.02 year-on-year.

The company is committed to improving upon its cost structure, which will have a positive impact on the company's future earnings. During the recent earnings call, the company's management stated it would improve its operating and capital costs in the future. The company forecasts that its total capital expenditure will decline to $3.3 billion in 2017 as compared to $4.4 billion in 2013.

Stock Price Catalyst
The company also remains committed to expanding its regulated business operations, which will provide earnings stability and fuel its long term earnings growth. In the recent third quarter, the company reached an agreement to sell its hydro assets, with a generation capacity of 630MW, in Montana for $900 million. The net proceeds of the transaction are likely to be used to finance PPL's regulated business expansion. The expansion of regulated operations remains an important long term earnings growth driver for the company. PPL anticipates regulated rate base growth to increase from $18.8 billion in 2012 to $26.1 billion in 2016.

Another important stock price catalyst is the fast track determination of PPL's filed business plan request, whose outcome is expected on November 22, 2013. The company has filed a request with Ofgem in 2Q2013 for the consideration of fast tracking its business plan and the decision on the fast track request is expected later this month. The company's management remains confident that it will get fast track status. If the company gets the fast track status, it will have a positive impact on the company's future top and bottom lines results.

Due to the solid financial performance of its regulated operations, PPL increased its earnings guidance range to $2.30-to-$2.40 per share, as compared to the previous guidance range of $2.25-to-$2.40 per share. In contrast to the company's expectations, analysts have estimated an EPS of $2.34 for 2013 and a next five-year growth rate of 5% per annum.

The company remains an attractive investment option. The company has a cheap forward P/E of 14x in comparison to its peers' average of 15x. Also, PPL has a higher profit margin of 13% and a higher dividend yield of 4.8% in comparison to its peers' average of 9.75% and 4.5%, respectively. Moreover, the company has been making efforts to expand its regulated business operations, which will portent well for the stock price. Therefore, I reiterate my bullish stance on the stock.

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Profit Margin

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Source: Yahoofinance.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.