While the company’s margins have improved, its revenues are consistently worse than they were during the 2004-2007 period. Even after four years of recovery following the global demand crisis, the utility company looks unable to return to a more rewarding path.
Duke Energy Corp (NYSE:DUK) looks like a smart investment option for the profit seeking investor, as it delivers an attractive dividend yield of 4.3%. Dividends paid by the company are supported by its high operating cash flow yield of nearly 11%. Also, Duke Energy Corp (NYSE:DUK) has a long term earnings growth target of 4%-6%, compared to analysts expectation of 5.5%. As a dividend paying utility, Duke Energy Corp (NYSE:DUK)’s stock performance remains exposed to changes in treasury yields.
American Electric Power Company Inc (NYSE:AEP) has been increasing its funding for pension liabilities, and reducing its pension liability gap. This has improved the balance sheet for the company, as risk of underfunding the pension liability has decreased. The company provides an attractive dividend yield of 4% and sports an estimated five years growth rate of 3.6% and a PEG of 4. Based on these metrics, American Electric Power Company Inc (NYSE:AEP) seems to be lagging behind its competitor Duke Energy Corp (NYSE:DUK). The company’s management intended to maintain its dividend payout ratio in the range of 60% – 70% and grow its dividend in line with earnings growth.
Great Plains Energy caters to a smaller audience than the competitors, yet it also has the benefit of being small and growing swiftly. Over the past three years, Great Plains Energy`s revenue growth and net income growth has been eclipsed by Duke Energy Corp (NYSE:DUK). Duke also provides the highest yield on its stocks, and what is even more favorable is the company’s market cap being the largest by a big margin. Great Plains Energy does, however, looks like the most undervalued stock of the three utility companies.
Expectations for future
Great Plains Energy Company’s future depends on two things: the Missouri and Kansas GDPs, and the company’s margins. Kansas’ GDP, forecasted by the Greater Kansas City Chamber of Commerce, shows growth throughout 2013, that is expected to continue until mid second quarter 2014. Furthermore, with colder weather coming up in the second half of the year, the company can expect the cyclical energy spike as electricity consumption picks up with the use of heating systems.
There are positives coming out concerning the economy of Kansas, but the effect this will have on Great Plains Energy is speculative at best. I maintain a pessimistic view of the company’s potential because Kansas’ GDP growth in 2011 was 2.1% and it grew 2.4% in 2012. This did not have a great effect on Great Plains Energy.
Duke Energy is expected to experience a rate base growth of 4%, from 2013 through 2015. Another important earnings driver for this company is the cost cut initiatives. The company strives to reduce non-fuel operating and maintenance expenses by 5%-7%. Expected decrease in costs might be achieved by functional consolidation, system consolidation and improving the supply chain process.
American Electric Power Company Inc (NYSE:AEP) has been increasing its funding for pension liabilities, and reducing its pension liability gap. This has improved the balance sheet for the company, as risk of underfunding the pension liability has decreased. The company has a lower estimated five year growth rate of 3.6% as compared to its peers’ average of 4.10%. Moreover, a dividend yield of 4% and a debt-to-equity of 123% for American Electric Power Company Inc (NYSE:AEP) seem worrisome compared to its peers. However, coal fired power plants for American Electric Power are located near coal mines, which give it a competitive edge for the use of coal instead of natural gas for power generation.
Final verdict
Duke Energy seems a sensible choice for investors who are looking for exposure to a large and diversified utility. With a decent dividend yield, a long term earnings growth target of 4%-6% and cost cut initiatives, Duke Energy is the best solution to your investment in the given selection.
The article Which Utilities Company Can Make You Rich? originally appeared on Fool.com.
Marina Avilkina has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Marina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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