What led to the decline in SCG’s EPS?
SCANA Corporation’s (SCG) cost of revenue fell 15.0% in 2016 and rose 7.0% in 9M17. This fall in 2016 was due to lower costs associated with fuel used in electric generation and gas purchased for resale, which was offset by purchased power. This rise in 9M17 was due to recovery in all these areas. As a result, SCG’s gross profit grew 6.0% in 2016 and remained flat in 9M17.
SCG’s operating expenses rose 6.0% and 21.0% in 2016 and 9M17, respectively. The increase in 9M17 was driven by an impairment loss associated with the abandonment of a nuclear project. This translated into decreases of 12.0% and 24.0% in operating income for 2016 and 9M17, respectively. The company’s 2015 number was partially enhanced by a gain on its asset sale.
Other net expenses rose 4.0% in 2016 and remained flat in 9M17, driven by interest expenses. A significant gain on the asset sale was recorded in 2015. SCG’s net income and EPS (earnings per share) grew 9.0% in 2016 before falling 3.0% in 9M17.
What could drive SCG’s future operating revenues and EPS?
Improving economic fundamentals, strong customer growth, and the expansion of regulated gas businesses are expected to drive SCANA Corporation’s (SCG) revenues and earnings. Investment in regulated gas businesses in North Carolina and South Carolina are projected to exceed $1.0 billion in the next three years. A principal subsidiary has announced an agreement to acquire a 540-megawatt, combined-cycle, natural-gas–fired power plant from Columbia.
SCG’s operating revenues are projected to grow 4.0% in 2017 and fall 5.0% in 2018. Its earnings per share are expected to remain flat in 2017 and fall 26.0% in 2018.
SCG’s PE (price-to-earnings) ratio is 9.1x, and its dividend yield is 6.6%. The sector’s average PE ratio is 58.6x, and its dividend yield is 3.7%.
Dividend ETFs with exposure to the utility sector
The WisdomTree Europe SmallCap Dividend ETF (DFE) has a PE ratio of 14.6x and a dividend yield of 2.5%. DFE has 3.0% exposure to the utility sector.
The WisdomTree Emerging Markets SmallCap Dividend ETF (DGS) has a PE ratio of 13.0x and a dividend yield of 2.7%. DGS has 4.0% exposure to the utility sector.