Business updates
NorthWestern Corp (NYSE:NWE) is one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 673,200 customers in Montana, South Dakota and Nebraska. The population growth above the national average of 3.47% in these states will help NorthWestern Corp (NYSE:NWE) to meet the long-term target growth rate in earnings and dividends of 4-6% per annum.
The company also strives to restrict any new power the company has to buy from small and independent wind power projects in Montana because it relies primarily of coal for power generation. These reports have been quashed by the company’s launch of its first wind farm, the Spion Kop. Spion Kop and the much larger Judith Gap wind farms are providing energy at a lower cost than coal powered plants in Montana. When the state law regarding 15% power from renewable energy was passed, it was a burden on utility companies.
NextEra Energy, Inc. (NYSE:NEE) focuses on the generation, transmission, distribution, and sale of renewable energy in the U.S. and Canada. On May 23, President and Chief Executive Officer Jim Robo announced that NextEra Energy, Inc. (NYSE:NEE)’s principal rate-regulated utility subsidiary invested more than $4 billion into strengthening a customer value proposition by providing high reliability, award-winning customer service with the lowest typical residential customer bill in Florida.
NextEra Energy, Inc. (NYSE:NEE) Resources, the company’s competitive energy business, added roughly 1,500 MW of new U.S. wind projects in 2012, after completing the largest wind program. NextEra Energy, Inc. (NYSE:NEE)’s nearly $7 billion in investments in the state also includes more than 5,400 megawatts of generating capacity and the Texas-based retail electricity provider Gexa, serving more than 200,000 residential and industrial customers in 14 states and the District of Columbia.
Dominion Resources, Inc. (NYSE:D), the U.S.’s largest producer and transporter of energy, owns 11,000 miles of natural gas transmission, gathering and storage pipeline and 6,300 miles of electric transmission lines, provides 27,500MGW (megawatts) of generation. Dominion Resources, Inc. (NYSE:D) acquired and merged with several energy-related companies that allowed its growth.
The company has a high P/E ratio of 112.47, drastically increasing from a P/E ratio of 25 in early 2013. Electric distribution expects growth in demand averaging 2% of annual sales and a 455MW increase in energy demand during 2013-2017. Dominion Resources, Inc. (NYSE:D)’s investors actually have ambitious expectations about the future growth of the company due to some projects under development such as Blue Racer Midstream and Cove Point LNG. On the flipside, the stock could hit a brick wall if future earnings are not up to expectations.
Tracking financials
On the cash flow front, NorthWestern Corp (NYSE:NWE) has seen a return to a positive cash flow for the last two years. For the past five years, the company’s revenue has either been marginally decreasing or stagnant. Its operating margin, on the other hand, has increased from 13.5% to 16.6% in the course of the last five years. This has understandably caused the EPS to show consistent growth, resulting in a 50% increase in its value from 2008.
NextEra Energy, Inc. (NYSE:NEE) presents great earnings and dividends. The company offers a 3.54% dividend, coupled with a consistent history of solid dividend growth.
Analysts expect NextEra Energy to earn $4.95 per share in 2013 compared to $4.54 per share in 2012. However, over the past decade the dividend payout ratio has been falling from 58% in 2002 to 48% in 2011. NextEra Energy has the lowest dividend payout ratio, a good sign for a utility company, since this ratio provides an opportunity for consistent dividend growth with minimum impact of short-term fluctuations in earnings.
Dominion Resources, Inc. (NYSE:D) has a high P/E ratio of 112.47, drastically increasing from a P/E ratio of 25 in early 2013. Dominion Resources, Inc. (NYSE:D)’s investors actually have ambitious expectations about the future growth of the company due to some projects under development such as Blue Racer Midstream and Cove Point LNG. On the flipside, the stock could hit a brick wall if future earnings are not up to expectations.
Expectations for future
NorthWestern Corp (NYSE:NWE) is expected to stick with coal-fired power plants for the short-term. However, the increasingly apparent feasibility of wind farms in Montana is expected to force the company to supply more of its power from wind power. With wind farms making more economic sense, I believe that the company’s energy mix will soon tip towards wind power.
For NextEra Energy’s management, there are limited opportunities in the future profitability path of this company. The expected CapEx for both future wind and solar projects is above $3 billion for each through 2014. The company would not be doing this if it sees any huge risks to the company’s profitability from these projects. Nevertheless, NextEra Energy is well hedged through 2014.
Due to the expense of its CapEx, Dominion should increase its long-term debt because even if the company renews with over a billion earnings per year, it will not be possible to fund a quarter of the upcoming CapEx without loaned money. On the flipside, Dominion is well positioned to profit from its LNG business over the long term with assets consolidated in Marcellus and Utica shale gas plays. Moreover, its Blue Racer Midstream and Cove Point LNG export project largely will fuel company’s future growth.
Final verdict
In this selection, NorthWestern Corp (NYSE:NWE) is the best bet. The company’s net income growth has superseded its competitors’ over the last three years, while the declining revenue seems to be an industrial phenomenon. Despite having a market cap of $1.6 billion, NorthWestern has not only been able to keep up with its much larger competitors but is fighting above its weight class because of the 3.59% yield. The stock has been rallying strong, especially in 2013. Keeping in mind the company’s proven potential and plans for the future, the undervalued NorthWestern stock looks to be a great opportunity.
The article Can Utilities Make You Rich? originally appeared on Fool.com and is written by Marina Avilkina.
Marina Avilkina has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. 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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