After Enron, the [utility] industry has gone back to basics. It has stable earnings, some growth, rising payout ratios and now, the repeal of PUCHA, the Public Utility Holding Company Act, that takes effect next month. A lot of companies have merged recently, and now, with the removal of PUCHA, there will be more deals. Also, we'll see the removal of the 10% cap on institutional owners of a given stock.
You want to buy the companies with unregulated coal and nukes. We own a bunch, but I'll talk about Westar Energy, which trades for $21.50. It's got a $1.9 billion market cap on 86.7 million shares; $1.7 billion of debt and $3.7 billion of enterprise value. We think they'll do $1.60 this year, $1.70-$1.75 next.
Barron's: What do they do, Mario?
Gabelli: This is an electric company, primarily in Kansas. They also have a half-interest in Wolf Creek, a nuclear plant. The balance sheet is in good shape. They get a 4.3% current return, and 85% is excluded from taxable income under this administration.
WR 1-yr chart:
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