Utilities Provide Safe Haven

11/14/2011


Amid this year's wild market gyrations, utility stocks have provided one of the few shelters from the storm. The best-performing sector in the S&P 500 Index in 2011, utilities have returned 16%, versus a 3% return for the broader index.

About 97% of the large-cap S&P 500's 33 utilities have posted results for the September quarter, with about three-fourths of those reporting results above consensus estimates. But the sector is struggling to find growth, with per-share profits projected to decline 1% in 2011 and 2% in 2012.

Our Quadrix® stock-rating system reflects the sector's middling fundamentals. The average utility stock in the broader S&P 1500 earns an Overall score of 47, and only one of the 69 stocks scores above 80. Indeed, the sector earns below-average Quadrix ranks in four of the six categories.

UTILITY INDUSTRY ANALYSIS
Industry Average
Industry
(No. Of Stocks)
Trailing
P/E
3-Yr.
Avg.
P/E
Div.
Yield
(%)
3-Yr.
Annual.
Div.
Growth
(%)
12-Mo.
EPS
Growth
12-Mo.
Sales
Growth
(%)
Est. 12-
Mo. EPS
Growth
(%)
YTD
Total
Return
(%)
Quadrix
Overall
Score
Electric (33)
16.5
14.4
4.0
2.2
4
4
11
17
49
Natural Gas (11)
18.1
15.7
3.5
4.0
2
0
6
16
42
Water (7)
20.0
21.5
3.4
2.9
8
7
7
2
46
Independent
Power (3)
20.6
14.9
0.8
(19.3)
3
(5)
(37)
6
23
Utility/Energy
Hybrid (4)
20.1
19.4
2.0
3.6
16
7
0
16
56
Diversified (23)
16.3
16.1
3.8
6.1
4
4
8
17
48
Utilities we
cover (81)
17.3
15.9
3.6
3.4
4
4
6
15
47

Within the utility sector, few stocks look inexpensive relative to their historical norms. Electric and diversified utilities appear the cheapest on an absolute basis. These two groups have delivered the strongest year-to-date returns, pay the highest yields, and appear poised to deliver the strongest profit growth in the coming 12 months.

After a change to the Top 15 Utilities portfolio this week, 13 of the 15 stocks come from the electric or diversified groups.

Natural-gas utility AGL Resources ($42; AGL) is being dropped from the Top 15 Utilities portfolio. Its Quadrix scores have declined and its operating momentum has eroded. Earnings estimates are trending lower, but it's tough to see AGL exceeding even lowered expectations. AGL now earns a B (average) rating in our Utility Update.


El Paso Electric ($34; EE) distributes electricity to 378,000 customers in West Texas and New Mexico. The company is embroiled in a rate dispute with the city of El Paso, an issue reflected in its valuation of just 14 times trailing earnings, an 11% discount to the median electric utility in the S&P 1500 Index. El Paso seems capable of outperforming modest expectations. El Paso is being added to the Top 15 Utilities portfolio and given an A (above average) rating in our Utility Update.

TOP 15 UTILITIES
3-Yr.
Annual.
Div.
Growth
(%)
12-Mo.
EPS
Growth
(%)
12-Mo.
Sales
Growth
(%)
Est. 12-
Mo. EPS
Growth
(%)
YTD
Total
Return
(%)
Sector Scores
Company (Price; Ticker)
Trailing
P/E
3-Yr.
Avg.
P/E
Div.
Yield
(%)
Quadrix
Overall
Scores
12-
Factor
Sector

Reranked
Overall
Industry
Alliant Energy
($42; LNT)
15
14
4.1
7
(1)
5
6
19
58
74
79
Electric
American Electric
($39; AEP)
13
11
4.8
4
9
6
3
15
58
95
85
Electric
Cleco  ($37; CNL)
15
14
3.4
6
39
5
(2)
23
65
85
91
Electric
CMS Energy
($21; CMS)
14
15
4.0
38
20
3
0
18
49
48
54
Diversified
Duke Energy
($21; DUK)
15
13
4.8
3
3
5
(4)
22
63
86
90
Electric
El Paso Electric
($34; EE)
14
12
2.6
NA
14
2
(7)
26
74
93
95
Electric
Energen ($52; EGN)
12
11
1.0
4
9
0
(20)
8
76
100
98
Hybrid
Entergy ($69; ETR)
9
11
4.8
3
3
(2)
(24)
2
76
98
99
Electric
Exelon ($45; EXC)
11
11
4.6
3
(12)
6
(25)
13
68
91
89
Diversified
Laclede Group
($40; LG)
14
14
4.0
3
18
(8)
(6)
14
38
42
36
Nat. Gas
NextEra Energy
($56; NEE)
13
12
3.9
7
(20)
(4)
11
12
55
90
75
Electric
PPL ($30; PPL)
10
14
4.6
3
21
24
(15)
19
82
99
100
Diversified
Public Service Ent.
($34; PEG)
12
10
4.0
3
(9)
(3)
(16)
11
62
96
93
Diversified
Sempra Energy 
($54; SRE)
12
12
3.5
10
28
7
(3)
6
56
84
83
Diversified
UniSource Energy
($37; UNS)
14
20
4.6
20
(7)
6
2
6
53
68
73
Electric
Portfolio Average
13
13
3.9
8
8
4
(7)
14
62
83
83
Note: Quadrix and sector-specific scores are percentile ranks, with 100 the best.   
NA Not Available — no dividend until this year.

 


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