Rally Leaves Utilities Looking Expensive

11/10/2014


In recent years, returns for the S&P 1500 utility sector have been all or nothing. Its annual performance ranked ninth or tenth among the 10 market sectors in four of the past five years — the exception was in 2011, when it finished first.

So far this year, S&P 1500 utilities have averaged a total return of 20%, tops among the sectors. In the past month, utility stocks have averaged a 9% return, also highest of the sectors and comfortably ahead of the index average of 5%.

After that rally, 88.3% of S&P 1500 utilities trade within 5% of their 52-week highs — far more than any other S&P sector. Just 37.6% of stocks in the broader index are currently within 5% of their 52-week highs.

S&P 1500 utilities average Quadrix Value ranks of 70, the highest of the sectors, in large part because utility stocks tend to trade at lower multiples to earnings, sales, and book value than other stocks. However, utilities don't look cheap relative to their own historical norms. Just 15% of S&P 1500 utilities trade below their five-year median P/E ratio, compared to 39% for the broader Index.

Only three of the stocks in our Top 15 Utilities portfolio trade below their five-year median P/E, but seven trade within 10% of their historical norms. And our recommended utilities look reasonable on an absolute basis, with an average P/E ratio of 17, compared to 19 for the 72 stocks in our Utility Update and 22 for the average stock in the S&P 1500.

TOP 15 UTILITIES
Indicated
Dividend
($)
Yield
(%)
--- P/E Ratio ---
YTD
Total
Return
Quadrix Scores
 
Company (Price; Ticker)
Trailing
5-Year
Median
Value
Overall
Industry
AGL Resources
($55; GAS)
1.96
3.6
13
14
20
90
84
Gas
Alliant Energy
($63; LNT)
2.04
3.2
18
16
27
58
54
Electric
AmeriGas Partners
($46; APU)
3.52
7.6
16
20
10
73
60
Gas
Atmos Energy
($54; ATO)
1.48
2.7
19
17
22
62
69
Gas
Avista ($36; AVA)
1.27
3.6
17
15
31
63
58
Diversified
CMS Energy
($33; CMS)
1.08
3.3
18
16
28
63
65
Diversified
DTE Energy
($84; DTE)
2.76
3.3
19
15
30
60
64
Diversified
Empire Dist.
Electric ($29; EDE)
1.04
3.6
17
16
31
63
54
Electric
Idacorp ($63; IDA)
1.88
3.0
17
16
25
56
79
Electric
Laclede Group
($52; LG)
1.76
3.4
17
15
16
66
69
Gas
Otter Tail
($31; OTTR)
1.21
3.9
17
28
10
76
79
Diversified
PNM Resources
($29; PNM)
0.74
2.5
20
19
26
56
59
Diversified
Scana ($57; SCG)
2.10
3.7
15
14
25
77
75
Diversified
UGI ($38; UGI)
0.87
2.3
19
15
41
63
80
Diversified
Westar Energy
($38; WR)
1.40
3.7
17
15
23
67
66
Electric
Top 15 average
3.6
17
17
24
66
68
Utility Update
average (72 stocks)
 
3.3
19
17
21
61
58
Note: Quadrix scores are percentile ranks, with 100 the best.

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