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. (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 (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 (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 (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 (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 (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 (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 (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 (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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
