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Electric utility stocks are go-to safety picks, and the past 18 months have, despite occasional spurts and runs of hope and excitement, found investors often seeking safety. The ultimate counter-cyclical sector, the utilities (NYSEARCA:XLU) have doubled the S&P's (NYSEARCA:SPY) overall return over the past 18 months, especially separating from the market over the past year as government-debt related issues have spooked the market intermittently.

click images to enlarge

XLU Chart

XLU data by YCharts

That leads to the natural question: have the utilities run up too much? It seems fair to reason that if the last three days' rally does somehow turn into a bullish run for the market as a whole, utilities as a sector will fall back to the pack. But with a steaming summer on tap and plenty of hurdles left for the macroeconomic picture to clear, we could still find ourselves in need of a shelter.

When the macro picture is unclear, it's worth dialing it down and looking at the micro picture, which is to say the companies that actually make up the utility sector. To do so, I've run a screen of utility companies with a market capitalization above $5 billion that have 3.5% or better dividend yields. We're dealing with at least mid-sized players, and the dividend is a crucial element in the safety net that utilities provide investors.

My screen yielded 22 stocks. Of those, 10 have outperformed the sector as a whole, six have performed about in line with the larger sector, and six have under-performed. In this article, I'm looking at the over-performers to see whether the move is over or if there's still height left, as well as to see which utilities might be worth getting into if a rotation away from safety does happen. In subsequent articles, I'll look at the lesser performers.

Each of these stocks has risen 25% or more in the last 18 months, and that's before including the bountiful dividends. The list is alphabetical by ticker. Information comes from TDAmeritrade, The Wall Street Journal, the companies' websites, Seeking Alpha transcripts, and YCharts. Here's a brief summary of each stock and my take on its prospects.

1. CMS Energy (NYSE:CMS)

Price (as of July 3rd close): $23.64

Market Cap: $6.2 billion

2011 P/E: 16.30

2012 P/E (estimated): 15.35

2013 P/E (est.): 14.41

2011 P/FCF: 21.69

Yearly Revenue Growth: 1.07%

EPS Growth last two years: 7.28%

Estimated EPS Growth next three years: 6.06%

Dividend Yield: 4.06%

Price change (1/3/2011-7/3/2012): 26.01%

CMS Chart

CMS data by YCharts

CMS Energy is a Michigan-based company that earns its money mainly from two sources: the regulated public utility company Consumer Energy, and power generation company, CMS Enterprises. The former is the steadier, traditional utility business that provides both electric and natural gas, along with most of the company's earnings. CMS recently received a mild regulatory case, as the Michigan state government approved a 10.3% ROE for the business, which should continue to support CMS' returns in this area. CMS is also fairly progressive in terms of generating power from nuclear, water, pumped storage, and wind sources, and is currently building a wind farm in northwest Michigan.

While in recent years CMS' prospects have been shrouded by Michigan's gloomy economy, that discount appears to be dissipating and CMS is further settling in as a solid, 5-7% growth per year company. CMS has also hiked its dividend for six consecutive years, making sure this part of the equation holds up for safety seekers.

Short Take: CMS is just off its 52-week high, but its P/E ratios are still on the low side for this group. It might be worth waiting for it to fall more off of that high, especially if we get a short-term rotation to growth. Entry at
$22 seems reasonable, with $26.70 (16.3x 2013 earnings) as a price target.

2. Centerpoint Energy (NYSE:CNP)

Price (as of July 3rd close): $20.65

Market Cap: $8.8 billion

2011 P/E: 16.35

2012 P/E (est.): 18.05

2013 P/E (est.): 16.74

2011 P/FCF: 15.26

Yearly Revenue Growth: -4%

EPS Growth last two years: 13.48%

Estimated EPS Growth next three years: 1.07%

Dividend Yield: 3.92%

Price change (1/3/2011-7/3/2012): 30.70%

CNP Chart

CNP data by YCharts

Centerpoint Energy is based in Houston and has, "electric transmission & distribution, natural gas distribution, competitive natural gas sales and services, interstate pipelines, and field services operations," with customers primarily in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Texas. The electric and natural gas distribution segments supplied two-thirds of the company's operating income last quarter. Centerpoint just signed a pair of deals to increase its field services segment, which could pay off down the line if natural gas prices return to higher levels. The company also won a major regulatory case in the Texas Supreme Court just over a year ago, which has helped buoy the stock price. Centerpoint has raised its dividend for 7 consecutive years.

Short Take: The stock has run up a lot and is just about the most expensive stock in this group, without offering a higher dividend or projected growth rate. Everything's bigger in Texas, but this valuation is a bit too much.

3. Dominion Resources (NYSE:D)

Price (as of July 3rd close): $54.39

Market Cap: $31.0 billion

2011 P/E: 17.83

2012 P/E (est.): 17.00

2013 P/E (est.): 15.81

2011 P/FCF: negative

Yearly Revenue Growth: -7%

EPS Growth last two years: 3.3%

Estimated EPS Growth next three years: 5.40%

Dividend Yield: 3.88%

Price change (1/3/2011-7/3/2012): 26.85%

D Chart

D data by YCharts

As befits its name, Dominion is one of the heavyweight players in the industry. The Virginia-based company has three roughly equal main segments: Dominion Virginia Power, Dominion Generation, and Dominion Energy. Dominion has been featured in the news this week with the destructive storm in the Mid-Atlantic region, and has posted frequent updates on its efforts to restore power to customer, efforts the company claims are running ahead of schedule.

Like most on this list, Dominion has suffered due to the mild winter this year, but has maintained its guidance. It's interesting to note that Dominion also operates several natural gas transmission and distribution projects and is expanding in this area, as the company is mulling a major plant in Cove Point, Maryland for liquid natural gas. This is interesting because, despite the low natural gas prices that have pressured some of the margins for utility companies and the extremely mild winter that impacted volume and energy usage, Dominion and other companies have been very strong investments.

Short Take: You can't go wrong with a leader in the sector on a pullback or rotation, but there are more attractive values and dividends on this list.

4. DTE Energy Company (NYSE:DTE)

Price (as of July 3rd close): $59.55

Market Cap: $10.1 billion

2011 P/E: 16.05

2012 P/E (est.): 15.84

2013 P/E (est.): 14.92

2011 P/FCF: 19.28

Yearly Revenue Growth: 3.52%

EPS Growth last two years: 5.58%

Estimated EPS Growth next three years: 4.16%

Dividend Yield: 4.16%

Price change (1/3/2011-7/3/2012): 30.68%

DTE PE Ratio Chart

DTE PE Ratio data by YCharts

DTE Energy is another Michigan-based utility company. Its two main businesses are regulated utilities -- Detroit Edison and MichCon -- though the company forecasts about 15% of 2012 net income from its other units, namely gas storage and pipeline, industrial and power projects, and energy trading. DTE just raised its dividend in June for the third consecutive year. Similarly suspect due to its Michigan location (and perhaps more so than CMS because it has more Detroit exposure), the stock is still relatively cheap despite the very strong period.

Short Take: Very similar to the profile for CMS, if slightly riskier. On a pullback to, say, $57, the stock would have about 17% total return upside.

5. Duke Energy (NYSE:DUK)

Price (as of July 3rd close): $68.69

Market Cap: $48.3 billion

2011 P/E: 15.68

2012 P/E (est.):16.01

2013 P/E (est.): 15.37

2011 P/FCF: neg.

Yearly Revenue Growth: 2.31%

EPS Growth last two years: 9.66%

Estimated EPS Growth next three years: 2.95%

Dividend Yield: 4.45%

Price change (1/3/2011-7/3/2012): 28.09%

(Note: Chart is skewed due to the reverse split, so no chart here)

Duke Energy has become the largest utility company in the country based on market capitalization, thanks to its $32 billion merger with Progress Energy, announced this week. The North Carolina-based giant now has nearly 8 million customers in the Carolinas, Florida, Indiana, Ohio, and Kentucky. The company also has an international business that runs power generation facilities and sells power, natural gas, and natural gas liquids in Latin America. Duke has heavy coal exposure, but also nuclear plants, natural gas-fired plants, and a small renewable portion of power generation.

Having just executed a 1-for-3 reverse stock split, Duke's stock price has dropped in the past few days. Beyond the change in the denominator, the surprising decision to keep Duke's CEO Jim Rogers on board post-merger and renewed uncertainty about the new company may have emerged among investors. Duke's business still heavily relies on regulated utility generation and distribution, which locks in its earnings in a pretty safe place. With 8 years of consecutive dividend hikes and the opportunity for merger synergies (Progress legacy businesses in the Carolinas especially offer opportunity), Duke should still work as an investment.

Short Take: The requisite pullback may be happening right now. The dividend is the strongest in this group to boot.

6. Consolidated Edison (NYSE:ED)

Price (as of July 3rd close): $62.57

Market Cap: $18.3 billion

2011 P/E: 17.28

2012 P/E (estimated): 16.69

2013 P/E (est.): 16.29

2011 P/FCF: 15.72

Yearly Revenue Growth:-2.68%

EPS Growth last two years: 8.29%

Estimated EPS Growth next three years: 2.61%

Dividend Yield: 3.87%

Price change (1/3/2011-7/3/2012): 26.28%

ED Earnings Per Share Chart

ED Earnings Per Share data by YCharts

ConEd is a historically steady performer, linked to the perennial boomtown of New York City. The company's business is based on the city that never sleeps and never turns out the lights, though ConEd also serves customers in the southeast part of the state and bordering sections of New Jersey and Pennsylvania. Besides that, it owns competitive energy units that accounted for about 3% of 2011 earnings.

The company is struggling through labor negotiations, having just this week locked out its employees and called in the federal mediators for help. This comes during a hot summer in New York City, which means unhappy and suffering customers, and also a dent in earnings during peak season. ConEd would be fortunate to have this situation resolved soon, both to meet customers' needs and continue moving forward during a busy time.

Short Take: While the free cash flow number is strong, the rest of the numbers are on the high side (P/Es) or a little low (dividend yield). A enduring strong play and a dividend champion, ConEd may be better sought out during a different cycle, when the P/Es are adjusted and the company is more in line with its peers.

7. First Energy (NYSE:FE)

Price (as of July 3rd close): $49.84

Market Cap: $20.8 billion

2011 P/E: 13.69

2012 P/E (est.): 14.62

2013 P/E (est.): 15.43

2011 P/FCF: 25.43

Yearly Revenue Growth: 21.88%

EPS Growth last two years: -1.7%

Estimated EPS Growth next three years: -1.6%

Dividend Yield: 4.41%

Price change (1/3/2011-7/3/2012): 32.34%

FE PE Ratio Chart

FE PE Ratio data by YCharts

What's interesting about First Energy is that the Ohio-based company, while outperforming over this 18-month period I've focused on, is still trading well below its pre-2008 crisis peak. Of course, earnings have not returned to that that height either, and the dividend has remained unchanged since 2008. However, I'm not sure why First Energy took it on the nose more directly than other utility companies.

In any case, the company owns 10 electric distribution companies in Ohio, Pennsylvania, New Jersey, West Virginia, and western Maryland. The company's generation is largely coal-based, but scrubbed and lower-emitting coal. Its earnings are expected to decrease over the coming two years, due largely to the drop in natural gas prices and challenges adapting to new environmental regulation. The company has a competitive energy business, which increases its exposure to natural gas (and coal) prices.

Short Take: The dividend is unlikely to rise as long as earnings are expected to drop, and the negative growth is a concern. Historically, though, that dividend has been sizable, and if the stock really pulled back to where the dividend would be 5% again ($42/share), the scenario would be attractive.

8. NISource Inc. (NYSE:NI)

Price (as of July 3rd close): $24.81

Market Cap: $7.0 billion

2011 P/E: 18.38

2012 P/E (est.):17.23

2013 P/E (est.): 16.22

2011 P/FCF: neg.

Yearly Revenue Growth: -7.26%

EPS Growth last two years: 12.88%

Estimated EPS Growth next three years: 6.27%

Dividend Yield: 3.87%

Price change (1/3/2011-7/3/2012): 39.15%

NI Earnings Per Share Chart

NI Earnings Per Share data by YCharts

NISource has been a consistent performer since the crisis, rising in almost a straight line. Based in Indiana, the company is mainly a natural gas distributor and transmitter, though it also has electric operations. As impressive as its price performance -- earning it the rank of top performer in the group over the past 18 months -- is its earnings growth over the same period, which has been equally steady and consistent. Not as consistent a grower? The dividend, which this quarter received its first hike since 2001! NISource CEO Robert Skaggs has insisted that the company considers a growing dividend a "core financial commitment," so perhaps this is the beginning of a long-term dividend growth story. The company has a good base to start from, but not a ton of stored up credit in raising dividends.

Short Take: It's more expensive than its peers and the dividend isn't super strong. The recent dividend hike was a modest, 4.3% raise. There are better stocks in this sector, methinks.

9. Next Era Energy (NYSE:NEE)

Price (as of July 3rd close): $68.57

Market Cap: $28.6 billion

2011 P/E: 15.62

2012 P/E (est.): 15.17

2013 P/E (est.): 13.88

2011 P/FCF: 623.36

Yearly Revenue Growth: -8.13%

EPS Growth last two years: 4%

Estimated EPS Growth next three years: 5.57%

Dividend Yield: 3.50%

Price change (1/3/2011-7/3/2012): 31.28%

NEE Earnings Per Share Chart

NEE Earnings Per Share data by YCharts

Next Era Energy is known as a leader in renewable energy generation. The Florida-based company has an impressive 52% of its generated net megawatts coming from wind power. The company has also been a steady earnings grower and has raised its dividend for nearly 20 consecutive years.

As far as this group goes, the company is also the cheapest company with growth prospects (though its free cash flow is hampered by heavy capital expenditures). It just barely makes this screen on its dividend, but considering the consistent growth of earnings and dividends, that's an acceptable "barely". The one note of caution is that the stock, like a few others on this list, has set its 52-week high this week.

Short Take: In a continued safety environment, this stock could be worth $79/share in 12 months (16x 2013 earnings). If the market rotates away from safety, the dividend becomes more attractive. Add in the strong clean energy portfolio, and this seems a good stock to snag around $65/share.

10. Pinnacle West Capital Corp. (NYSE:PNW)

Price (as of July 3rd close): $52.13

Market Cap: $5.7 billion

2011 P/E: 17.43

2012 P/E (est.): 15.42

2013 P/E (est.): 14.81

2011 P/FCF: 23.70

Yearly Revenue Growth:-.70%

EPS Growth last two years: 16.08%

Estimated EPS Growth next three years: 6.39%

Dividend Yield: 4.03%

Price change (1/3/2011-7/3/2012): 25.68%

PNW Earnings Per Share Chart

PNW Earnings Per Share data by YCharts

Pinnacle West Capital, the last stock in this group -- alphabetically, and in terms of market cap and performance -- is hardly a slouch. The Arizona-based company, our only western company on this list, generates most of its earnings in the summer (unsurprisingly), and so was one of the least impacted by the mild winter we just had. The company "generates, sells and delivers electricity and energy-related products and services" to more than a million customers in Arizona.

Considering Arizona's population is fast-growing, and that the weather is getting hotter and hotter (whether natural or human-induced), there are some secular trends that Pinnacle seems well-positioned to benefit from. The company anticipates that its customer base will grow by 2.6% annually over the next two decades. It is also building out its solar power generation to take advantage of Arizona's hot, sunny climate.

Short Take: It doesn't stand out for its numbers, but Pinnacle's story is interesting. The dividend hasn't changed in five years, which is discouraging, and earnings have been roughly flat over that same period. If the company can deliver earnings growth over the next few years, it might be able to return to dividend growth and deliver on the promise of Arizona's sun.

Summary

Utilities as a sector and these stocks as outperformers have run up quite a bit. It's easy (and glib) for me or anybody else to say wait for a pullback or a sector rotation out of safety and into growth to pick up these stocks. But that's where we sit right now -- in a tough time to jump on a crowded bandwagon.

My top picks out of this group would be the two Michigan companies, CMS and DTE. I'd also choose Duke Energy as a tried-and-true with new juice from the merger, Next Era as a consistent company and renewables leader, and Pinnacle West as an under-the-radar pick.

I tend to be a bottom-fisher, and my pick in this sector is not on the over-performer side. Those who like proven performance and safety, however, can do well picking from this list.

Source: Top Utility Performers: Picks & Predictions