- EDE reported solid quarterly results and very strong full financial year performance, with EPS jumping almost 18% Y/Y and revenue up ~10%. The authorities approved an 11% electric revenue increase.
- I reiterate my long thesis. My target price is raised to $26. EDE should be held as a buy-and-hold-investment for excellent dividend yield of over 4% and future revenue increases.
- The long thesis has worked very well, yielding a 26% total return in a year. The 10% dip I advised to wait for materialized after ~6 weeks.
The Empire District Electric Company (NYSE:EDE) reported strong second quarter and full-year results (SEC filing, earnings call, press release). The company reported consolidated earnings for the second quarter of 2014 of $11.2M, or $0.26 per share, compared to $0.27 a year ago. Annual earnings for the year ended June 30 were $71.3M, or $1.65 per share, compared to $1.40 per share a year ago. Electric segment gross margin increased slightly during the quarter while gas segment margin fell slightly on warmer weather. Annual revenue for the electric segment rose 10% Y/Y while gas revenue jumped 14.6% Y/Y. Other revenue jumped 19%. Both the electric and gas gross margins jumped Y/Y. Electric income provided the lion's share of annual profit.
The Arkansas Public Service Commission (APSC) on May 20, 2014, agreed to an annual base revenue increase of $1.375M, or 11%, from the Company's Arkansas electric customers while the company asked for an 18% increase based primarily on the Asbury plant investments. Still, the agreed 11% increase is based on a 9.3% return on equity, which is very solid. The quarterly dividend remained at $0.255 per share, yielding 4.15% annually. The Company's full-year weather normal earnings guidance range of $1.38 to $1.50 per share, provided in February 2014, remains unchanged, slightly below the previous year.
In my original thesis a year ago based on virtually guaranteed, increasing prices, I advised to buy EDE on a 10% dip, which came roughly 6 weeks later in late August to early September. The stock is up 22% since then. If the 4.15% dividend is included the total one-year return is roughly 26%. Not bad for a utility, but not sustainable at such a high rate. I am reiterating my long thesis, but the annual appreciation should be lower, roughly 5% to 10% in the stock plus the 4% dividend. My target price is currently $26 per share within 12 months. However, I recommend holding this position as a buy-and-hold, sleep-well-at-night investment for long-term dividend income.
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