Which Of These 5 Energy Stocks Will Power Your Portfolio?

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 |  Includes: CNP, CNX, DTE, DUK, DVN
by: Stan Stafford

Introduction

As I've stated in previous articles (water stocks and electric stocks), I'm a pretty big fan of utility stocks. I think utility investments can be fairly safe investments that offer solid returns through price appreciation and dividend income. In this article I will be reviewing the following five 'energy' utility stocks:

  • CenterPoint Energy (NYSE:CNP)
  • CONSOL Energy (NYSE:CNX)
  • Devon Energy (NYSE:DUK)
  • DTE Energy (NYSE:DTE)
  • Duke Energy (DUK)

In determining whether these stocks are attractive long term buys, I will be looking at each company's financials, current valuation and recent trading activity, earnings, dividends, and company outlooks.

Stock #1: CenterPoint Energy

Company Overview

CenterPoint Energy, Inc. is a public utility holding company that operates in several segments including electric transmission & distribution, natural gas distribution, competitive natural gas sales and services, interstate pipelines, and field services operations. CNP serves over 5 million customers in a number of states through the United States. CNP was founded in 1882 and is headquartered in Houston, Texas.

Current Financials

Gross Profit Margin (Quarterly) 61.16%
Profit Margin (Quarterly) 9.21%
Return on Assets ((NYSE:TTM)) 1.50%
Return on Equity 7.76%
Revenue $8.06B
Revenue Quarterly Growth (YOY) -3.81%
Click to enlarge

CNP's revenue has not been moving in the right direction the past few years.

CNP Revenue (Annual) Chart

CNP Revenue (Annual) data by YCharts

The company has managed to maintain a steady increase in gross profit during this time, but even that looks to be a thing of the past, as the company's latest quarter saw a steep decline in profit.

CNP Gross Profit (Annual) Chart

CNP Gross Profit (Annual) data by YCharts

Current Valuation and Recent Trading Activity

CNP has a price to earnings ratio of 32.48x and a price to book value of 2.52x. While the company's price to book value is in line with recent history, its price to earnings value remains high.

CNP PE Ratio (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

CNP PE Ratio (TTM) data by YCharts

CNP is currently trading at $25.07, $0.58 shy of its 52-week high and $6.28 higher than its 52-week low. CNP is trading above both its 50-day moving average of $24.47 and its 200-day moving average of $23.93.

CNP has seen the following price returns:

1 Month Price Returns 2.66%
Year to Date Price Returns 30.18%
1 Year Price Returns 28.58%
3 Year Price Returns 55.56%
Click to enlarge

Earnings

For its latest quarter, CNP reported earnings per share of $0.35. This was 1 cent lower than estimates and 5 cents lower than the same period last year.

The company's recent earnings history isn't very impressive. While, earnings saw a boost in late 2011/early 2012, they have slid back down even further this year.

CNP EPS Basic (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

CNP EPS Basic (TTM) data by YCharts

Dividend

CNP currently pays a quarterly dividend of $0.2075 that yields 3.31%. CNP's dividend has grown consistently but slowly over the past five years with increases of 1/4 to 1/2 cent each year. As you can see from the chart below, this kind of growth isn't very encouraging.

CNP Dividend Growth (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

CNP Dividend Growth (TTM) data by YCharts

Company Outlook

In CNP's most recent quarterly earnings report, the company reaffirmed its guidance for 2013, which is earnings in the range of $1.17 to $1.25 per share. I think that's a fair assessment, and I think that the company will continue to see continued, but slow growth in usage from its customers. The problem is that this doesn't necessarily translate into growth in revenue, as we have seen by the company's decline in revenue over the past five years.

With CNP's IPO plan for it's natural gas midstream partnership, Enable, a lot of questions remain unanswered for this company. Not just with the IPO, but with the overall business, as several senior leaders are set to retire in the near future. The company continues to invest heavily in its electric infrastructure and will soon seek approval to add transmission capacity to meet growing demand.

CNP has faced several challenges recently, but has done a good job at limiting the negative effects of those challenges. While the company has seen large declines in revenue and stagnant earnings growth, the stock has been able to provide solid returns for investors over the past several years. I don't think there is any reason that won't continue, and if CNP can turn around its revenue slide, those returns could be even higher in the future.

Stock #2: CONSOL Energy

Company Overview

CONSOL Energy Inc. is an American energy company with a focus on coal and natural gas production throughout markets in the United States, Canada, and western Europe. CNX was founded in 1991 and is headquartered in Canonsburg, Pennsylvania.

Current Financials

Gross Profit Margin (Quarterly) 28.83%
Profit Margin (Quarterly) -5.17%
Return on Assets 0.57%
Return on Equity 1.83%
Revenue $5.13B
Revenue Quarterly Growth (YOY) 6.15%
Click to enlarge

Looking at the chart below, you can see that CNX experienced nice revenue and profit growth from 2009 through 2012. But from 2012 to the present, revenue and profit has been falling.

CNX Revenue (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

CNX Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

CNX has a price to earnings ratio of 114.36x and a price to book value of 2.08x. You can see from the chart below that CNX's PE ratio has recently skyrocketed compared to recent history.

CNX PE Ratio (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

CNX PE Ratio (TTM) data by YCharts

CNX closed Friday at $35.98, $3.25 shy of its 52-week high and $9.73 higher than its 52-week low. CNX is trading above below its 50-day moving average of $36.56 but ahead of its 200-day moving average of $33.20.

CNX has seen the following price returns:

1 Month Price Returns -6.18%
Year to Date Price Returns 12.09%
1 Year Price Returns 15.54%
3 Year Price Returns -14.17%
Click to enlarge

Earnings

For its latest quarterly report, CNX reported earnings per share of -$0.24 per share. This was the 2nd quarter in a row (and 3rd in the last five) in which CNX reported negative earnings.

Looking at the chart below, you can see just how steeply CNX's earnings have dropped in the past few quarters.

CNX EPS Basic (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

CNX EPS Basic (TTM) data by YCharts

Dividend

CNX currently pays a $0.125 quarterly dividend. The company's dividend hasn't changed since 2011 when it increased from $0.10. I don't expect CNX's dividend to get cut anytime soon, but I wouldn't expect it to increase any either, at least not anytime soon. With a yield just over 1%, CNX's dividend isn't much better than an investor could get with a money market account.

Company Outlook

The near term future of CNX doesn't appear to be very bright. Today, Citigroup downgraded the stock from buy to neutral. CNX's heavy reliance on coal makes it a riskier energy company IMO than the others in this article. I think CNX's recent move to sell its Consolidation Coal subsidiary was the right move, but I'm not sure it is enough to offset weaker coal pricing. Considering the fact that CNX will soon lower its quarterly dividend to $0.0625, I'm not sure long term investors have enough incentive to take a chance on this stock.

Stock #3: Devon Energy

Company Overview

Devon Energy Corporation is among the largest U.S.-based independent natural gas and oil producers, with a strong concentration in its four operating divisions: the Northern Division, the Southern Division, Canada, and the International Division. DVN was founded in 1971 and is headquartered in Oklahoma City, Oklahoma.

Current Financials

Gross Profit Margin (Quarterly) 63.86%
Profit Margin (Quarterly) 15.77%
Return on Assets -1.40%
Return on Equity -2.82%
Revenue $10.36B
Revenue Quarterly Growth (YOY) 45.84%
Click to enlarge

Looking at the chart below, you can see that DVN's revenue and profit have been up and down in recent years.

DVN Revenue (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DVN Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

DVN has a current price to book value of 1.18x and a earnings yield of -$2.43. The chart below illustrates just how much DVN's earnings yield has recently fallen.

DVN Earnings Yield (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DVN Earnings Yield (TTM) data by YCharts

DVN closed Friday at $60.48, $6.44 shy of its 52-week high and $9.67 higher than its 52-week low. DVN is trading lower than its 50-day moving average of $61.43, but higher than its 200-day moving average of $58.04

DVN has seen the following price returns:

1 Month Price Returns -1.54%
Year to Date Price Returns 15.35%
1 Year Price Returns 14.39%
3 Year Price Returns -15.96%
Click to enlarge

Earnings

For its latest quarter, DVN reported adjusted earnings per share of $1.29. This was a big improvement from the same period last year in which the company reported negative earnings per share.

DVN EPS Basic (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DVN EPS Basic (TTM) data by YCharts

Dividend

DVN currently pays a $0.22 quarterly dividend. This was raised earlier in the year from $0.20. Currently yielding 1.47%, DVN's yield is comparable to CNX's, but DVN's dividend growth has been more favorable.

DVN Dividend Chart

DVN Dividend data by YCharts

Company Outlook

The company is nearing a deal to buy GeoSouthern Energy Group. With this news, the stock is up 6%. I think this is a perfect move for the company as it has faced flat revenue and negative earnings.

As long as the stock doesn't go up much further in the next day or so with this news, I think the stock is reasonably valued. If this deal goes through it will add to DVN's impressive asset portfolio that includes positions in the Permian Basin, the Barnett and Cana-Woodford shales, and Alberta's oil sands. I think DVN is a bit riskier than a few other energy stocks available, but I definitely see a potential for solid long term returns from this stock.

Stock #4: DTE Energy

Company Overview

DTE Energy is a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide. Its largest operating units are Detroit Edison, an electric utility serving 2.1 million customers in Southeastern Michigan, and MichCon, a natural gas utility serving 1.2 million customers in Michigan. DTE was founded in 1995 and is headquartered in Detroit, Michigan.

Current Financials

Gross Profit Margin (Quarterly) 59.49%
Profit Margin (Quarterly) 8.29%
Return on Assets 2.37%
Return on Equity 8.18%
Revenue $9.48B
Revenue Quarterly Growth (YOY) 9.00%
Click to enlarge

DTE's revenue has recently been on the rise. With its current trailing twelve months value approximately $1.5 billion higher than a few years ago.

DTE Revenue (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DTE Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

DTE closed Friday at $69.49, $3.83 shy of its 52-week high and $11.04 higher than its 52-week low. DTE is currently trading higher than both its 50-day moving average of $67.67 and its 200-day moving average of $68.15.

DTE has seen the following price returns:

1 Month Price Returns 5.68%
Year to Date Price Returns 15.64%
1 Year Price Returns 18.42%
3 Year Price Returns 51.88%
Click to enlarge

Earnings

For its latest quarter, DTE reported earnings per share of $1.13. This was 18 cents lower per share than the same period last year. Looking at the chart below, you can see that DTE has been unable to find any continued trend in earnings growth, instead displaying an up and down earnings history that has earnings growth fairly flat over the past several years.

DTE EPS Basic (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DTE EPS Basic (TTM) data by YCharts

Dividend

DTE currently pays a $0.655 quarterly dividend that is yielding 3.77%. The yield is low compared to DTE's recent history, but dividend's paid has continued to increase.

DTE Dividend Yield (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DTE Dividend Yield (TTM) data by YCharts

Company Outlook

DTE is focused on continuous improvement and this can be seen by its fairly recent announcement of several senior executive changes. It's latest quarterly report was not impressive, but the company has several key moves in place to help turn things around. One of the biggest issues DTE has faced is increased expenses, so the company has put several cost-control efforts in place that should be reflected in upcoming financials. I believe that DTE's increased exposure to wind and solar energy generation will pay off big in the future. I think when you account for DTE's solid dividend return, this company is a good option for long term investors looking at energy stocks.

Stock #5: Duke Energy

Company Overview

Duke Energy is an energy company that provides services to over four million customers through coal, natural gas, oil and nuclear plants. DUKE was founded in 1916 and is headquartered in Charlotte, North Carolina.

Current Financials

Gross Profit Margin (Quarterly) 63.12%
Profit Margin (Quarterly) 14.96%
Return on Assets 2.12%
Return on Equity 5.91%
Revenue $24.18B
Revenue Quarterly Growth (YOY) -0.19%
Click to enlarge

DUK's revenue has been on the rise recently despite the barely negative quarterly growth results from its most recent quarter.

DUK Revenue (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DUK Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

DUK has a current price to earnings value of 21.00x and a price to book value of 1.23x. You can see how that compares to its historical valuation in the chart below.

DUK PE Ratio (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DUK PE Ratio (TTM) data by YCharts

DUK closed Friday at $71.80, $3.66 shy of its 52-week high and $11.95 higher than its 52-week low. It is trading above both its 50-day moving average of $70.12 and its 200-day moving average of $69.08.

DUK has seen the following price returns:

1 Month Price Returns 5.39%
Year to Date Price Returns 12.08%
1 Year Price Returns 19.44%
3 Year Price Returns 34.37%
Click to enlarge

Earnings

In its third quarter report, DUK reported earnings per share of $1.46, which was 1 cent less than the same period a year ago and 5 cents less than estimates. This was the third quarter in a row that DUK's earnings were below estimated figures.

DUK EPS Basic (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

DUK EPS Basic (TTM) data by YCharts

Dividend

DUK pays a $0.78 quarterly dividend that is currently yielding 4.37%. Looking at the chart below, you can see that DUK's dividend has steadily increased, while the yield has dropped.

DUK Dividend Chart

DUK Dividend data by YCharts

Company Outlook

I feel that DUK's future is bright. The company has a solid track record of growth and with its diversified business, DUK has a strong ability to limit the damage that negative impacts (such as unfavorable weather, outages, etc.) have on its overall bottom line. DUK continues to expand its diversification through recent developments like its Green Source Rider program and new generation projects. Management has a strong commitment to shareholder's and DUK provides the highest yielding dividend of the five stocks reviewed in this article. I think long term investors would benefit from adding DUK to their portfolio.

Conclusion

Each of the companies reviewed have various positive and negative aspects to specific areas of operations. Out of the five stocks mentioned the only stock I would recommend avoiding would be CNX. IMO, the company has too many unresolved questions going forward to warrant investment. While the company has made changes, I don't see enough evidence to suggest these will turnaround the company's sub-par revenue, earnings, and price return growth.

CNP has faced many of the same issues as CNX such as falling revenue and profit and flat earnings. At its current price, I don't recommend adding CNP as I think its currently valued a bit high, I think CNP's consistent dividend and long term returns warrant consideration.

Of the three remaining stocks (DVN, DTE, and DUK), I think they all are solid options for long term investors. I think if you are a dividend growth investor, than DUK would be the obvious choice. If you are looking for price appreciation, I think DVN would fit the bill with the recent news of its plan to buy GeoSouthern Energy Group. I think DTE could be the best overall option as it has a comparable dividend to DUK (3.77% yield vs. 4.37) and with the company's increased exposure to renewable energy generation, I think DTE has the potential to offer great long term returns and increased dividends.

As always, I suggest individual investors perform their own research before making any investment decisions.

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.