What follows is a list of utilities that are rated as "hold" or worse on The Street. On the other hand, these firms offer high dividend yield and low betas that can hedge against macro uncertainty. While I find limited upside right now, opening a long position should be considered for income investors.
Duke Energy (DUK)
Duke is rated closest to a "sell" of the three. It trades at a respective 15.6x and 15.1x past and forward earnings, with a dividend yield of 4.7%. It has a beta of 0.4.
Consensus estimates for Duke's EPS forecast that it will be roughly flat at around $1.45. Assuming a multiple of 15.5x and a conservative 2013 EPS of $1.41, the rough intrinsic value of the stock is $21.86. Part of the reason for the bearish sentiments is due to the roadblock that the company hit in its attempt to merge with Progress Energy (PGN). I am optimistic that the deal will fall through and help realize cost and revenue synergies in minimal time.
PPL Corporation (PPL)
PPL is rated around a "hold" and trades at a respective 10.6x and 11.6x past and forward earnings, with a dividend yield of 5%. It has a beta of 0.4.
Consensus estimates for PPL's EPS forecast that it will decline by 12.5% to $2.38 in 2012, grow by 3.8% in 2013, and then decline by 6.5% in 2014. Assuming a multiple of 14x and a conservative 2013 EPS of $2.42, the rough intrinsic value of the stock is $33.88, implying 21.7% upside. Following strategic takeover activity, the company is estimated to have three-fourths of its EBITDA come from regulated businesses in Kentucky, Pennsylvania, and international by next year. At the same time, around two-thirds of business will come from busload operations that will benefit from better fuel cost spreads.
NV Energy (NVE)
NV Energy is rated around a "hold" and trades at a respective 19x and 13.2x past and forward earnings with a dividend yield of 3.2%. It has a beta of 0.7.
Consensus estimates for NV Energy's EPS forecast that it will decline by 12.5% to $0.84 in FY2011 and then by 46.4% and 3.3% in the following two years. Assuming a multiple of 14x and a conservative FY2012 EPS of $1.21, the rough intrinsic value of the stock is $16.94. Management has deep industry knowledge and has helped to dramatically improve the financial health of the company. The firm has a strong ability to control costs and execute, despite a challenging Las Vegas economy.