In an early July article, I pointed out two Michigan gas and electric companies that could benefit from an unusually hot summer in the state of Michigan. Both companies highlighted in that article have now reported strong second quarter earnings and appear to be making my projection come true.
DTE (DTE) is an electric and gas company headquartered in Michigan. The company operates with its Detroit Edison and MichCon subsidiaries. The company has a "disciplined growth plan" to provide 5-6% long term growth in its earnings per share. This growth partnered with strong dividend growth and yield offers a great utility stock pick.
In the company's second quarter, the company mentioned the warm summer more than once. In fact in the summer months through mid July, Michigan has seen 23 days with temperatures above 90 degrees, versus a normal of 12 days. Michigan has also seen four days with temperatures at or above triple digit mark 100 degrees.
DTE reported earnings per share of $0.86, versus last year's second quarter earnings of $0.65. Analysts had been calling for earnings per share of $0.70. DTE blew away estimates and has now beat earnings three of the last four quarters (+23%, -16%, +10%, +7%). After these strong earnings, the company also confirmed full year guidance of $3.65-$3.95 in earnings per share, and sounded confident of hitting or exceeding the midpoint of that range ($3.80). Earnings per share were powered by Detroit Edison ($0.74), MichCon ($0.02), and non-utility ($0.17). The company's corporate and other segment saw a loss of $0.07 in the quarter. The warmer weather helped the MichCon segment earn a profit in a quarter that normally sees a loss for the company.
Other positives for DTE recently are:
· Selling assets in Barnett Shale region, recently saw a 50% increase in total reserves during 2011
· Offered new 10 and 30 year loans at low rates, used proceeds to refinance high interest loans
· Opened Gratiot County wind park, largest wind farm in the state of Michigan
· Announced construction on several additional wind parks
· Acquired an on-site business from Duke Energy (DUK) for $200 million, could double the size of on-site business, and grow DTE's customer base
CMS Energy (CMS), made up of Consumers Energy, CMS Enterprises, and EnerBank USA, is a large utility company also based in the state of Michigan. The company also saw increased earnings from the warmer weather in the state of Michigan.
In the second quarter, Consumers saw earnings per share of $0.40, versus earnings of $0.26 in last year's second quarter. Analysts were calling for $0.38 in earnings per share. Consumers earnings per share beat of 5% marked a string of earnings beats. In the last four quarters, Consumers has beaten or matched analysts' estimates. Consumers is backing its full year guidance of $1.52-$1.55. Analysts are expecting full year earnings of $1.54, at the high end of Consumers estimates.
Consumers saw its highest ever peak demand for energy on July 17th. This marked the second year in a row of Consumers seeing a record demand for its energy. On July 17th, Consumers reported that fewer than 1% of customers saw power outages. Of the people who lost energy, 99.9% saw their service fixed within 8 hours. In June, Consumers raised electric and gas prices for its customers, which should lead to even higher earnings this year.
Here's a chart to see how the two Michigan utility companies compare to each other:
|Analyst Target 2012||$1.54||$3.80|
|Company Target 2012||$1.52-$1.55||$3.65-$3.95|
|Price to Earnings 2012 (Analyst/Company)||16.0/15.9-16.2||16.1/15.5-16.8|
|Analyst Target 2013||$1.64||$4.00|
|Forward Price to Earnings 2013||15.0||15.3|
|Average Quarterly Earnings Beat (Last 4)||4.0%||6.1%|
Both companies have seen their shares trade higher this year. DTE is up 14% in 2012, while CMS shares are up 13%. Consumers shares are trading at ten year highs, while DTE recently saw its shares hit an all time high. Both companies have similar price to earnings and dividend yields. I recommend both stocks to anyone looking for exposure to the utility or energy sector. As a Michigan resident, I am familiar with both and coincidentally a customer of both utility companies as well.
Michigan saw a mild winter this past season, which hurt many utility companies here. The strong warm summer months will power these companies higher and they could be set up for records if winter months return to normal temperatures in 2012-2013. I am considering picking up one of these companies in my portfolio, and will probably lean towards CMS Energy with its cheaper (dollar wise) stock price and strength in energy demand.