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  • 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.

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

Source: Update: The Empire District Electric Company's Q2 Earnings - Revenue, EPS And Margins Rise, Revenue Increase Approved

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