ModernGraham Quarterly Valuation Of Xcel Energy

| About: Xcel Energy (XEL)

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Xcel Energy (NYSE:XEL) fares in the ModernGraham valuation model.

XEL Chart

XEL data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - PASS
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $30.03
MG Value $29.29
MG Opinion Fairly Valued
Value Based on 3% Growth $25.93
Value Based on 0% Growth $15.20
Market Implied Growth Rate 4.15%
NCAV -$42.42
PEmg 16.80
Current Ratio 0.88
PB Ratio 1.56

Balance Sheet - 12/31/2013

Current Assets $3,218,000,000
Current Liabilities $3,654,500,000
Total Debt $10,910,800,000
Total Assets $33,907,500,000
Intangible Assets $0
Total Liabilities $24,341,500,000
Outstanding Shares 497,970,000

Earnings Per Share

2013 $1.91
2012 $1.85
2011 $1.72
2010 $1.61
2009 $1.49
2008 $1.46
2007 $1.35
2006 $1.35
2005 $1.20
2004 $1.27

Earnings Per Share - ModernGraham

2013 $1.79
2012 $1.69
2011 $1.59
2010 $1.50
2009 $1.42
2008 $1.36

Dividend History

XEL Dividend Chart

XEL Dividend data by YCharts


Xcel Energy Inc. is a very intriguing utility company, having passed every requirement of the Defensive Investor except the current ratio requirement. It also qualifies for the Enterprising Investor by default because it is suitable for Defensive Investors, despite having a level of debt relative to its current assets that normally turns Enterprising Investors away. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel comfortable researching the company further. From a valuation perspective, the company appears to be fairly valued, having grown its EPSmg (normalized earnings) from $1.42 in 2009 to $1.79 in 2013. This level of historically demonstrated growth supports the market's implied estimate of earnings growth of 4.15%, leading the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the market price.

Disclaimer: The author did not hold a position in Xcel Energy Inc. (XEL) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.