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Wall Street often looks at a firm’s operating margin to see how strong a firm’s pricing strategy is, along with its operating efficiency. The operating margin itself is a profitability ratio that gauges the amount of revenue left over after certain expenses are deducted, such as variable costs. An important note to remember is that this ratio illustrates how much a firm has made on each dollar of sales before interest and taxes are deducted.

We ran a screen for utility companies that appear undervalued by their forward P/E ratios (X<12). From this narrowed pool we then screened for firms with strong profitability (operating margin>15%).

(The list is ranked from highest to lowest by the forward P/E ratio.)

1. Centrais Ele. Brasileira S.A. (NYSE:EBR)

Sector

Utilities

Industry

Utilities - Diversified

Market Cap

$13139M

Beta

0.94

Analyst Sentiment

buy

The company generates and distributes commercial electric power in Brazil. The firm's forward P/E is 5.34. EBR’s operating margin is 16.09%. The short interest for the firm is N/A as of 8/15/2011.

2. Energy Company of Minas Gerais (NYSE:CIG)

Sector

Utilities

Industry

Utilities - Diversified

Market Cap

$9629M

Beta

N/A

Analyst Sentiment

Sell

The firm's forward P/E is 6.08. CIG’s operating margin is 28.35%. The short interest for the firm is N/A as of 8/15/2011.

3. Basic Sanitation Company (NYSE:SBS)

Sector

Utilities

Industry

Utilities - Regulated Water

Market Cap

$5847M

Beta

1.35

Analyst Sentiment

buy

The company offers water and sewage services to a variety of customers in the state of Sao Paulo, Brazil. The firm's forward P/E is 6.34. SBS’s operating margin is 28.95%. The short interest for the firm is N/A as of 8/15/2011.

4. Energy Company of Parana (NYSE:ELP)

Sector

Utilities

Industry

Utilities - Diversified

Market Cap

$5985M

Beta

0.94

Analyst Sentiment

buy

The company generates and sells electricity to residential, commercial, industrial, and rural customers in the state of Parana, Brazil. The firm's forward P/E is 6.9. ELP’s operating margin is14.96%. The short interest for the firm is N/A as of 8/15/2011.

6. The AES Corp (NYSE:AES)

Sector

Utilities

Industry

Utilities - Independent Power Producers

Market Cap

$7965M

Beta

1.48

Analyst Sentiment

sell

The company provides power all over the world. The firm's forward P/E is 7.93. AES’s operating margin is 21.46%. The short interest for the firm is N/A as of 8/15/2011.

7. Entergy Corp (NYSE:ETR)

Sector

Utilities

Industry

Utilities - Diversified

Market Cap

$10939M

Beta

0.57

Analyst Sentiment

sell

The company operates is an integrated energy firm in the US. The firm's forward P/E is 10.2. ETR’s operating margin is 19.74%. The short interest for the firm is 2% as of 8/15/2011.

8. Transportadora de Gas del Sur (NYSE:TGS)

Sector

Utilities

Industry

Utilities - Regulated Gas

Market Cap

$553M

Beta

1.18

Analyst Sentiment

sell

The company transports and produces natural gas and natural gas liquids in Argentina.The firm's forward P/E is 10.55. TGS’s operating margin is 21.98%. The short interest for the firm is N/A as of 8/15/2011.

9. Enersis SA (NYSE:ENI)

Sector

Utilities

Industry

Utilities - Regulated Electric

Market Cap

$12420M

Beta

0.27

Analyst Sentiment

hold

The company generates and distributes electricity in all over South America. The firm's forward P/E is 10.62. ENI’s operating margin is 25.97%. The short interest for the firm is N/A as of 8/15/2011.

10. National Electricity Company (NYSE:EOC)

Sector

Utilities

Industry

Utilities - Regulated Electric

Market Cap

13295

Beta

0.34

Analyst Sentiment

buy

The company generates and distributes electricity in Peru, Chile, Colombia, Argentina, and Brazil. The firm's forward P/E is 10.71. EOC's operating margin is 36.57%. The short interest for the firm is N/A as of 8/15/2011.

We hope this helps as investors do their own due diligence on profitable utility companies that appear undervalued.

Source: 10 Undervalued Utilities Lighting Up Profits