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Spire Inc. Is About 10% Overpriced

May 05, 2020 4:57 PM ETSpire Inc. (SR)19 Comments
Patrick Doyle profile picture
Patrick Doyle


  • There's much to like about this company, particularly the dividend history here.
  • Investors don't buy companies, though, they buy stocks. In spite of the fact that an insider just bought a large block, the stock is a bit overpriced in my estimation.
  • Thankfully, there's an excellent short options trade that presents investors with a "win-win" trade.

I decided to look at Spire Inc. (NYSE:SR) because utilities are relatively immune to economic downturns and because the company is a dividend superstar. I want to determine whether the shares represent good value at these levels or not. I'll try to answer that question by reviewing the financial history here, and by looking at the stock itself. Spoiler alert: In spite of the fact that an insider purchased just under $200,000 of stock, I don't think the shares represent great value at the moment, as they're slightly overpriced. That said, there is an excellent short put trade to be made here that I think has the potential to generate decent returns for investors. I don't like the current price, but there's obviously value here. For that reason, I think the best strategy at the moment is to eschew the shares but sell the puts.

Financial Snapshot

There's much to like about the financial history here in my view. In spite of the fact that revenue has been basically flat for years, the company has managed to grow profits at a CAGR of about 5.5% over the past five years. In addition, the payout ratio remains muted, currently, at about 50% on both earnings and cash from operations. This suggests to me that there's little reason to worry about ongoing dividend payments here.

Nothing's perfect, though, and Spire is no exception. In particular, the level of debt has grown dramatically over the past five years, and, as a result, the interest expense has grown at a CAGR of about 6.5% in that time. Also, investors have been exposed to consistent dilution, so going forward, each share will likely represent a smaller portion of future earnings.

While the first quarter was a bit softer than the same period a year ago

This article was written by

Patrick Doyle profile picture
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I'll be selling the puts mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (19)

Hi Patrick, I always appreciate your articles. Do you like Spire at this time, 1/15/21? Thanks.
4Logos profile picture
Hi Patrick - I bought some after it came down to the range you suggested and it continues to tank....any ideas why?

thanks in advance for your thoughts on averaging down at this point
Gridbird profile picture
@Lost in America, I had made some great bucks trading Spire’s preferred stock, but I am out as it is currently through the roof in price. Im not a common stock guy, but I bought an entry position today at $53.60...And will buy more if it drops more. They are still calling for $3.75 range profits this year all while stock price is near 5 year low. Covid will hurt some earnings but once through that it looks good. Current dividend payout ratio is not extreme. They are my local gas ute and I will look to buy more if price presents itself.
Joe A2000 profile picture
Grid, I can't believe you're buying common stock. Say it isn't so! Seriously, why the change in investing approach?
Gridbird profile picture
@Joe A2000, Hi Joe, this is the equivalent of me sticking a toe in the water and calling it swimming, ha. Definitely not revising anything. I have natural biases to my local utilities being my more familiarity with them. I have owned the Spire preferred (presently dont) and made a lot of money buying and selling repeatedly since it was issued. Its YTC is ridiculously low now being its pushing $28. I still wanted a skin in Spire and long term relative value with stock near 5 year low seems to favor the common.

Their GAAP income near term is effected by their storage business which they are trying to get off the mat. But basically 90% of all income and most revenue comes from the regulated side still. And they are sticking to their growth forecasts. This will be the only common I own. Hope to add more though, but nothing crazy. Would rather SR-A drop to $26 to reenter but that doesnt appear to be happening any time soon unfortunately.
riguy profile picture
Patrick, time has been in your favor. Any chance you may update your article or write another?
Patrick Doyle profile picture

Funny you should mention that, because I was just looking at Spire puts this aft. Will definitely update the thesis.
Gridbird profile picture
@Patrick Doyle, Thanks for the article, Pat. Dont hear much on Spire....Dont own the common, but Dear Lord have I made a mint off its preferred SR-A. Pretty much have beat it like a red headed step child flipping over and over since it was issued last summer. What a gift it has been.
Patrick Doyle profile picture
LOL! "red headed step child." Love it.
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