Focus On Utilities

8/13/2012


Our buy lists don't feature a single utility stock. This is not an oversight, simply a reflection of the sector.

On average, utility stocks in the S&P 1500 Index earn Quadrix® Overall scores of 42, the lowest of the 10 sectors, with only one of the 63 stocks scoring above 80. They also average Value scores of 42, trailing 12-month sales growth of 1%, and estimated five-year annual profit growth of 5%, all lowest among sectors.

Given our growth-at-a-good-price philosophy, few utilities even make it to our short list for new Buys. Below are two that have received serious consideration in the last year. Both are components of our Top 15 Utilities portfolio (see the story in Utility Review or visit www.DowTheory.com/Go/Top15 for more details).

American States Water floats to the top

Earlier this month, American States Water ($44; AWR) boosted its quarterly dividend 27% to $0.355 per share, the 58th consecutive annual increase. The stock now yields 3.3%, slightly above the average for water utilities.

American States provides water for more than 256,000 customers and electricity to 23,000 customers in California. The regulated water (63% of profits in the six months ended June) and electric (11%) utilities should expand their customer bases in coming years. The contracted-services unit (26%), which builds and operates water systems for military bases, offers the most growth potential.  

In the June quarter, American earned $0.79 per share, up 16% and $0.15 above the consensus, on 10% growth at the water unit and 36% from services. The stock has topped the consensus by at least 23% in the last two quarters. Obtain an annual report for American States Water Co. at 630 E. Foothill Blvd., San Dimas, CA 91773, (909) 394-3600, www.aswater.com.

AMERICAN STATES WATER
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '12
0.79
vs.
0.68
+ 1%
41.72
-
35.63
17 - 15
Mar '12
0.53
vs.
0.37
+ 13%
38.00
-
34.90
17 - 16
Dec '11
0.35
vs.
0.44
- 8%
36.40
-
33.56
16 - 14
Sep '11
0.83
vs.
0.62
+ 8%
35.50
-
30.53
17 - 14
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
75
66
47
67
57
78
86

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


PPL offers growth and yield

PPL's ($28; PPL) Quadrix® Overall score of 85 is the highest in the utility sector. The consensus projects annual profit growth of 6% over the next five years, better than average for a utility. Factor in a rich 5.1% dividend yield — more than a percentage point above the sector average — and PPL's total-return potential stands out.

In the June quarter, PPL earned $0.51 per share, up 13% but $0.10 above the consensus, its fourth consecutive quarterly profit surprise. U.S. electric and natural-gas utilities (26% of profits in the fiscal year ended March 2012) provide electricity to 2.2 million customers and gas to 319,000 customers in Pennsylvania, Kentucky, and Virginia. The international business (32% of profits) serves 7.8 million electricity customers in England and Wales. Power generation and marketing accounts for the remaining 42% of profits. Obtain an annual report for PPL Corp. at 2 N. Ninth St., Allentown, PA 18101, (610) 774-5151, www.pplweb.com.

PPL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '12
0.51
vs.
0.45
+ 2%
28.44
-
26.68
11 - 10
Mar '12
0.70
vs.
0.84
+ 41%
29.85
-
27.28
11 - 10
Dec '11
0.70
vs.
0.83
+ 126%
30.27
-
27.00
11 - 9
Sep '11
0.76
vs.
0.74
+ 43%
29.61
-
25.00
10 - 9
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
85
68
77
61
40
61
74

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com