AVA has taken on considerable debt to finance its activities. While cash flow appears adequate to keep everything going, there is not much margin for error. The stock has increased in volatility in recent years and it has underperformed the S&P. The dividend yield appears inadequate to compensate investors for the level of risk. In my opinion AVA is trading at a significant premium to its intrinsic value. The stock price appears to have fully discounted possible positive developments in the future. AVA does not look like an attractive investment at this time.
Description of business from the company’s website: “Avista Corp. (AVA), based in Spokane, Wash., is an energy company engaged in the generation, transmission and distribution of energy as well as other energy-related businesses. Its core business, Avista Utilities, is a regulated utility, providing service to 338,000 electric and 297,000 natural gas customers in the economically growing northwestern United States. Avista’s unregulated businesses include Advantage IQ, Avista Energy and Avista Power. Avista’s business strategy emphasizes the safe and reliable provision of energy and energy-related services at a competitive price, helping customers get the most value from their energy dollar and providing investors with a fair return.”
1) Is the size of firm over 1 billion market capitalization? Yes, 1.22B.
2) Price to earnings analysis: is the current P/E ratio below 20? Yes, 15.19
3) Has the stock’s performance equaled or exceeded the performance of the S&P? The company has underperformed with increased volatility since 1998.
4) Volatility: Is the stock’s beta less than or equal to 1.00? Yes, .92.
5) Price to assets analysis: is the P/B ratio below 2.5? Yes, 1.48.
6) Price to cash flow analysis: is the current P/CF ratio below 20? Yes, 7.27.
7) Does the stock’s dividend yield exceed the yield of the S&P 500? Yes, 2.36 vs. 2.10.
8) Dividend growth - does the five year dividend growth rate exceed the S&P’s dividend growth rate? Yes, 2.57 vs. 1.69.
9) Dividend payout analysis: Is the payout ratio less than 50%? Yes, 34.3%.
10) Current ratio analysis: Is the current ratio greater than 2.0? No: .90.
11) Debt to equity ratio analysis: Is the total debt to equity ratio less than 1.0? No: 1.46.
12) Interest coverage analysis: Does the interest coverage ratio exceed 3.0? No: 2.23.
13) Intrinsic valuation - is the stock selling below its forward intrinsic value? No
14) Earnings stability - has there been positive net income for each of the prior ten years? Yes, but earnings have been quite variable, and there have been several lean years.
15) Earnings growth - is net income for the company greater than five years ago, preferably at least 1/3 greater? Yes.
16) Is the business simple and understandable? Yes.
17) Does the business have favorable long term prospects? Yes.
18) Are company insiders buying more stock than they are selling? No.
19) Does technical analysis reveal a convincing uptrend? Yes.