2 Electric Utilities You Should Avoid

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Includes: D, ENOC
by: Douglas Denhartog

Summary

One of these 2 utilities does not pay a dividend.

These 2 electric utilities are approximately 3 times as expensive by price to EBITDA compared to their peers.

Each of these 2 utilities currently trade for approximately twice the P/E of their peers.

After the all-knowing asset allocation tool of my brokerage informed me I owned zero utilities, I decided it was time I investigate the current investment opportunities available in the utilities sector. I started first by looking at Dividend Aristocrats in 4 Dividend Aristocrats You Should Consider Buying and found Consolidated Edison (NYSE:ED) to be an initially viable opportunity. However, upon further investigation in Now Is The Time to Consider Consolidated Edison, I was unable to develop a compelling enough investment thesis that ED was the utility for me to purchase at this time.

With no irresistible opportunity before me, I used Bloomberg to identify the companies currently classified as an electric utility (electric-distribution, electric-generation, electric-integrated, electric-transmission and independent power producer) currently trading on a stock exchange in the United States, 183 in total, so that I could conduct a broader search in hopes of finding a feasible utility investment opportunity.

I introduced the most interesting opportunities worthy of further research in The 7 Best Electric Utilities Americans Can Own. This article identifies the 2 electric utilities which appeared most often among the worst fifteen companies when looking individually at:

  • price to sales;
  • price to EBITDA;
  • dividend yield;
  • price to book;
  • price to earnings; and
  • percent above 52-week low.

METHODOLOGY

All metric and trading data was obtained from Yahoo Finance. The original group of 183 electric utilities included some dodgy constituents indeed. These questionable companies were removed if they had trading volume below 10,000 shares and no price to earnings or price to book. This condensed the original list of 183 down to the 70 companies. A complete list of the 70 companies analyzed can be found in Table 1 below.

These 70 electric utilities were compared against each other using the six metrics listed above. For each metric the companies were sorted by their respective metric value from least to greatest, except for dividend yield, which was sorted from greatest to least. Each company was assigned an initial point value of zero. A point was then assigned to each of the top fifteen companies for each metric and a point was subtracted from each company in the bottom fifteen for each metric. This means a maximum of 6 points and a minimum of -6 points was possible. The distribution of cumulative points for all six metrics can be seen below in Chart 1 and Table 1.

Chart 1. Cumulative Point Distribution

Table 1. Cumulative Points

Symbol

Company

Points

(NYSE:HE)

Hawaiian Electric Industries Inc.

4

(NYSE:TEG)

Integrys Energy Group, Inc.

4

ED

Consolidated Edison, Inc.

3

(NYSE:EDE)

The Empire District Electric Company

3

(NYSE:ETR)

Entergy Corporation

3

(NYSE:FE)

FirstEnergy Corp.

3

(NYSE:HNP)

Huaneng Power International, Inc.

3

(NYSE:DUK)

Duke Energy Corporation

2

(NYSE:ELP)

Companhia Paranaense de Energia

2

(OTCPK:OTCPK:ENLAY)

Enel SpA

2

(NYSE:GXP)

Great Plains Energy Incorporated

2

(NYSE:PIKE)

Pike Corporation

2

(OTCQX:OTCQX:RSHYY)

Open Joint-Stock Company RusHydro

2

(NYSE:SCG)

SCANA Corp.

2

(NYSE:TE)

TECO Energy, Inc.

2

(UIL)

UIL Holdings Corporation

2

(OTCPK:OTCPK:AGLNF)

AGL Energy Limited

1

(NYSE:CIG)

Companhia Energ

1

(OTCPK:OTCPK:ECIFY)

Electricite de France SA

1

(ENI)

Enersis S.A.

1

(OTCQX:OTCPK:EONGY)

E.ON SE

1

(NYSE:PNW)

Pinnacle West Capital Corporation

1

(NYSE:PPL)

PPL Corporation

1

(NYSE:SO)

Southern Company

1

(NYSE:UTL)

Unitil Corp.

1

(NYSE:AEE)

Ameren Corporation

0

(NYSE:AEP)

American Electric Power Co., Inc.

0

(NYSE:ALE)

ALLETE, Inc.

0

(NYSE:AVA)

Avista Corp.

0

(NYSE:BKH)

Black Hills Corporation

0

(NYSE:DTE)

DTE Energy Company

0

(NYSE:EDN)

Empresa Distribuidora y Comercializadora Norte S.A.

0

(NYSE:EE)

El Paso Electric Co.

0

(NYSE:EIX)

Edison International

0

(NYSE:EXC)

Exelon Corporation

0

(OTCPK:OTCPK:IBDRY)

Iberdrola SA

0

(NYSE:KEP)

Korea Electric Power Corp.

0

(NYSE:LNT)

Alliant Energy Corporation

0

(NU)

Northeast Utilities

0

(NYSE:NWE)

Northwestern Corporation

0

(NASDAQ:OTTR)

Otter Tail Corporation

0

(NYSE:PEG)

Public Service Enterprise Group Inc.

0

(NYSE:PNM)

PNM Resources, Inc.

0

(NYSE:POR)

Portland General Electric Company

0

(NYSE:WR)

Westar Energy, Inc.

0

(NYSE:XEL)

Xcel Energy Inc.

0

(OTCPK:OTCPK:AESAY)

AES Tiet

-1

(NYSE:CMS)

CMS Energy Corp.

-1

(NYSE:CPL)

CPFL Energia S.A.

-1

(NASDAQ:MGEE)

MGE Energy Inc.

-1

(NYSE:PAM)

Pampa Energia SA

-1

(NYSE:PCG)

PG&E Corporation

-1

(NYSE:POM)

Pepco Holdings, Inc.

-1

(NYSE:UNS)

UNS Energy Corporation

-1

(NYSE:CNL)

Cleco Corporation

-2

(NYSE:CPN)

Calpine Corp.

-2

(NYSE:EOC)

Empresa Nacional de Electricidad S.A.

-2

(NYSEMKT:HTM)

U.S. Geothermal Inc.

-2

(NYSE:IDA)

IdaCorp, Inc.

-2

(NYSE:MDU)

MDU Resources Group Inc.

-2

(NYSE:OGE)

OGE Energy Corp.

-2

(NYSE:ORA)

Ormat Technologies Inc.

-2

(ITC)

ITC Holdings Corp.

-3

(NYSE:NEE)

NextEra Energy, Inc.

-3

(NYSE:NYLD)

NRG Yield, Inc.

-3

(OTCPK:OTCPK:SSEZY)

SSE plc

-3

(OTCPK:OTCPK:TEZNY)

TERNA - Rete Elettrica Nazionale Societ

-3

(NYSE:WEC)

Wisconsin Energy Corp.

-3

(NYSE:D)

Dominion Resources, Inc.

-4

(NASDAQ:ENOC)

EnerNOC, Inc.

-4

As Table 1 shows, the 2 electric utilities that cumulatively ranked worse than the other 68 with -4 points were:

  1. Dominion Resources, Inc.
  2. EnerNOC, Inc.

METRIC 1. PRICE TO SALES

Price to sales values were sorted from least to greatest. The median price to sales value of all 70 electric utilities was approximately 1.4, while the median price to sales value of the top and bottom fifteen was approximately 0.7 and 2.7, respectively. The price to sales for D and ENOC was 3.1 and 1.3 respectively, which means D is approximately 4 times, and ENOC 2 times, as expensive as the median 0.7 price to sales of the top fifteen companies. Table 2 lists the fifteen companies with the highest price to sales.

Table 2. Bottom Fifteen Ranked By Price To Sales

Company

Price to sales

WEC

2.1

MGEE

2.1

SO

2.2

IDA

2.2

HTM

2.3

AESAY

2.4

ORA

2.5

NEE

2.7

CNL

2.8

OGE

2.9

D

3.1

NYLD

3.1

EOC

3.3

TEZNY

4.4

ITC

6.0

METRIC 2. PRICE TO EBITDA

Price to EBITDA values were sorted from least to greatest. The median price to EBITDA value of all 70 electric utilities was approximately 5.2, while the median price to EBITDA value of the top and bottom fifteen was approximately 3.4 and 7.2, respectively. The price to EBITDA for D and ENOC was 8.7 and 10.3, respectively, which means D is approximately 2.6 times, and ENOC 3 times, as expensive as the median 3.4 price to EBITDA of the top fifteen companies. Table 3 lists the fifteen companies with the highest price to EBITDA.

Table 3. Bottom Fifteen Ranked By Price To EBITDA

Company

Price to EBITDA

ED

6.6

OTTR

6.6

WEC

6.6

CNL

6.6

IDA

6.7

NEE

6.9

EOC

7.1

MDU

7.2

SSEZY

7.3

ALE

7.4

MGEE

7.6

D

8.7

ITC

9.0

OGE

9.0

ENOC

10.3

METRIC 3. DIVIDEND YIELD

Dividend yield values were sorted from greatest to least. The median dividend yield value of all 70 electric utilities was approximately 3.3%, while the median dividend yield value of the top and bottom fifteen was approximately 4.5% and 0%, respectively. The dividend yield for D and ENOC was 3.4% and 0%, respectively. 3.4% is not anything to turn your nose up at, but it is considerably lower than 4.5%, and 100% of 0 is 0! There were 16 companies with no dividend yield, and these were not included in a table for brevity.

METRIC 4. PRICE TO BOOK

Price to book values were sorted from least to greatest. The median price to book value of all 70 electric utilities was approximately 1.6, while the median price to book value of the top and bottom fifteen was approximately 1.1 and 2.6, respectively. The price to book for D and ENOC was 3.5 and 2.1, respectively, which means D is approximately 3.2 times, and ENOC 1.9 times, as expensive as the median 1.1 price to book of the top fifteen companies. Table 4 lists the fifteen companies with the highest price to book.

Table 4. Bottom Fifteen Ranked By Price To Book

Company

Price to book

CMS

2.2

MDU

2.3

PAM

2.3

NEE

2.3

WEC

2.4

OGE

2.4

EOC

2.5

CPL

2.6

TEZNY

2.6

AESAY

2.8

SSEZY

3.0

CPN

3.0

D

3.5

ITC

3.5

EDN

9.8

METRIC 5. PRICE TO EARNINGS

Price to earnings values were sorted from least to greatest. The median price to earnings value of all 70 electric utilities was approximately 18, while the median price to earnings value of the top and bottom fifteen was approximately 12.9 and 33.6, respectively. The price to earnings for D and ENOC was 25.4 and 24, respectively, which means D is approximately 1.9 times, and ENOC 1.9 times, as expensive as the median 12.9 price to earnings of the top fifteen companies. Table 5 lists the fifteen companies with the highest price to earnings.

Table 5. Bottom Fifteen Ranked By Price To Earnings

Company

Price to earnings

ENOC

24.0

D

25.4

DUK

25.9

PCG

26.0

CPL

28.9

AGLNF

29.2

PIKE

30.4

HTM

33.6

FE

35.8

EONGY

37.0

SSEZY

47.2

KEP

53.6

CPN

86.2

NYLD

191.2

PNM

930.3

METRIC 6. PERCENT ABOVE 52-WEEK LOW

Percent above 52-week low values were sorted from least to greatest. The median percent above 52-week low of all 70 electric utilities was approximately 23.2%, while the median percent above 52-week low value of the top and bottom fifteen was approximately 9% and 58.6%, respectively. The percent above 52-week low for D and ENOC was 28.3% and 58.6%, respectively, which means D is approximately 3.1 times, and ENOC 6.5 times, as expensive as the median 9% percent above 52-week low of the top fifteen companies. Table 6 lists the fifteen companies with the highest percent above 52-week lows.

Table 6. Bottom Fifteen By Percent Above 52-Week Low

Company

Percent above 52-week low

UNS

41.6

ORA

42.3

CIG

45.9

IBDRY

48.7

POM

50.7

RSHYY

53.7

ELP

55.5

ENOC

58.6

ECIFY

61.3

KEP

81.0

HTM

87.9

NYLD

92.7

ENLAY

99.4

PAM

239.0

EDN

586.5

CONCLUSION

Only 25 of the 70 electric utilities managed to survive this analysis with at least one total cumulative point, 21 companies ended the analysis with zero points and 24 unfortunately ended with negative point(s). The distribution of cumulative points for all six metrics can be seen in Chart 1 above and Table 7 below.

Table 7. Cumulative Point Distribution

Points

Companies

-4

2

-3

6

-2

8

-1

8

0

21

1

9

2

9

3

5

4

2

As a dividend investor, it would be hard to justify an investment in EnerNOC, Inc. as it does not currently pay a dividend, and it should be apparent from the data analysis that there are a plethora of more attractively valued companies than Dominion Resources, Inc.

Comment below if you think I have correctly identified two overvalued companies or am wrongly passing over two great opportunities.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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