Northwestern Corp. (NWE) does business as NorthWestern Energy. It provides electrical and natural gas services in Montana, South Dakota and Nebraska. It is small at a market cap of $1.35B. Yet it is big enough to be a safe haven. It trades at a PE of 14.32 and an FPE of 14.26. It pays a 4.09% ($1.48) annual dividend. It has a seven year EPS CAGR of 5.1% and a 5.8% dividend CAGR. These are good for a utility. NWE serves an area that stands to grow its population (and thus NWE's customer base) in the next ten years as the new oil shale operations bring new prosperity to the region. A few technology companies may even move to the area due to the relatively cheap cost of living and the often picturesque scenery. These businesses both will bring further more mundane businesses along with them. These states economies should boom relative to the majority of other U.S. areas. This can only help a major utility in the area -- Northwestern Corp. It provides its energy at rates significantly below the national average, so excessive charges should not be a problem.
If you like "green" companies, this is also the company for you. It generates approximately 60% of its electrical power from hydropower. It is growing its wind power generation (still a small contributor). It uses natural gas turbines to generate the rest of the electrical power it supplies. This is much cleaner than the other common electrical generation fuel -- coal. It seems unlikely that Northwest Corp will run afoul of environmental groups in the near future. This is one less thing to worry an investor.
In Q2 2012, NWE continued its growth. Consolidated gross operating margin was $148.2 million versus $141.4 million in the year ago quarter. Its Q2 profit rose 3.6% year over year. NWE beat on EPS at $0.31 per share versus an expected $0.29 per share. Total revenues fell 2.8% to $244.6 million from $251.8 million in the year ago quarter. This was mostly due to an unseasonably warm spring. NWE reaffirmed its earnings expectations for FY2012 of approximately $2.35-$2.50 per fully diluted share. The company benefited from higher natural gas rates in South Dakota. It was hurt by higher property taxes in Montana.
A plus going forward is that the problem with the gas turbine generators at the Dave Gates Generating Station (DGGS) is now mostly resolved. Five of the six turbines have been returned to service after servicing by Pratt & Whitney Power Systems or being replaced by loaners from Pratt & Whitney Power Systems. The complexities of the problems have not been fully worked out, but the company anticipates that any further servicing needed will not incur the necessity of buying outside power. As of May 1, 2012, the company eliminated its contracted replacement services. Q3 should benefit slightly from having no such charges. Plus the company hopes to eventually be able to recover the incremental costs incurred during the DGGS downtime period. Q4 should benefit from likely colder late fall and early winter temperatures. Early predictions are for an el Nino year this coming winter. The immediate future looks rosy.
NWE's proposed project, the Mountain States Transmission Intertie Project (MSTI), is a proposed 500 KV transmission project from Montana to southeastern Idaho. It has a potential future capacity of 1,500 MWs. Currently NWE is proceeding with viability studies etc. It has an Memorandum of Understanding with the Bonneville Power Administration (BPA) to explore the possibility that MSTI can meet its needs. NWE expects a reply from BPA on its willingness to participate in MSTI by September 30, 2012. The company is also expecting a draft environmental impact statement by August 30, 2012. Both of these items will help it determine if it should go forward with the proposed new facility. This facility would allow it to sell "green" energy to utilities outside the state of Montana. The company has capitalized $23.5 million in preliminary costs associated with the project through June 30, 2012. It would be a blow if the project did not go forward. Revenue and EPS growth are desirable.
The two year chart of NWE provides some technical direction to this trade.
The slow stochastic sub chart shows that NWE is near oversold levels. The main chart shows that it is in a strong uptrend. The fact that it is currently below its 50-day SMA is a buy signal presuming the continuation of the uptrend. It pays a healthy 4.09% dividend -- good for a utility. I have uncovered no fundamental reasons to keep you from buying NWE. Rather it is a highly profitable, growing, highly "green" energy provider. There are few utilities with stock price charts as nice (steadily rising) as NWE's. It is a buy both technically and fundamentally.
If you like utilities with steady growth charts, you might also consider: Consolidated Edison (ED), Southern Company (SO), Duke Energy Corp. (DUK), and Wisconsin Energy Corp. (WEC). I note that NWE trades at a lower multiple than any of these, and it is still stable with a Beta of 0.58.
Note: Some of the fundamental data above came from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NWE over the next 72 hours.