More From Matt Phillips
Why Southern Company trades at a lower valuation to its peers
Forward EV/EBITDA is another way to interpret relative valuation. Southern Company has an EV/EBITDA multiple of 10.8x.
Investors should be cautious of First Energy’s rising debt levels
First Energy’s increase in debt in recent years has affected the company’s debt ratios. First Energy’s debt to equity (or DE) ratio is 1.62x. This is relatively higher than the average DE ratio of 1.32x
NRG, Calpine, and Dynegy extend losses for second week in a row
Dynegy Inc. (DYN), NRG Energy Inc. (NRG), and Calpine Corporation (CPN) were among the top four losers in the utility sector for the second successive week.
Exelon is one of the leanest power utilities in the US
For 4Q14, Exelon’s debt-to-equity ratio was 0.92x. Its operations are fairly underleveraged. It has one of the leanest debt metrics in the power utility industry.
Why Exelon’s recent quarterly earnings were positive
Exelon Corporation (EXC) reported a net income of $440 million in its 2Q14 earnings. The quarterly net income was $14 million lower year-over-year (or YoY).
Central Industrial and Southeast regions lead slump in electricity production
For the week ended December 26, 2014, each of the divisions across the United States reported a drop in electricity production on a week-over-week basis.
Must-know: Lowest EBITDA margin in 10 years for AES
AES Corporation (AES) reported EBITDA margins of 24.3% in the third quarter of 2014. Year-over-year EBITDA margins had dropped from 28.1% in 3Q13.
Must-know: Why Dynegy doubles capacity
After the deal, Dynegy’s (DYN) total generation capacity will double to 26 gigawatts (or GW). As a result, Dynegy’s capacity will be at par with the third largest competitive U.S. generator among the independent power producers (or IPPs)—Calpine Corporation (CPN).
Power utilities cheer investors with blockbuster returns in 2014
US power companies distribute a high percentage of their income to shareholders as dividends. Total returns are a better parameter to evaluate the sector’s performance.
Duke set to triple solar power capacity
The three solar projects approved for construction will have a capacity of 128 MW to add to Duke Energy’s total generation capacity.
Exelon posts highest adjusted earnings margin in 3 years
In the last two years, Exelon has looked to strengthen its utility division via acquisitions. For example, in 2012, Exelon merged with Constellation, adding 1.2 million utility customers.
US states with the highest growth in electricity sales
The US is a large country. It’s divided into 50 states. Consumption trends across the states and regions help identify demand centers within the country.
Why Duke Energy is the largest electric utility in the US
Duke Energy Corporation (DUK) is a heavyweight in the U.S. electric utilities industry. It mainly operates in the U.S. and Latin America. In 2013, its operations had $24.6 billion in revenue.
Must-know: US power sector and its indicators
The power sector is the backbone of any economy. All of the other industries depend on it. In the U.S., the power utilities business is characterized by steady dividends and stable earnings.
Why Exelon’s generating assets are regionally diverse
Exelon Corporation’s (EXC) power generation assets are spread across 18 states in the U.S. and some parts of Canada. Regional diversity is very important.
Must-know: Duke’s revenue growth over the years
Duke Energy (DUK) reported a jump of 27.6% year-over-year (or YoY) growth in earnings per share (or EPS) in its 2Q14 results. Favorable weather and a lower effective tax rate strengthened the regulated utilities business.
Must-know: Duke Energy’s generation and fuel mix
Duke Energy’s (DUK) electricity generation portfolio is regionally diversified. The fuel type that’s used to produce electricity is also diversified. Duke has a generation capacity of 57,500 megawatts (or MW) in the U.S.
Must-know: Duke Energy’s operating segments
Duke Energy (DUK) operates in three business segments—Regulated Utilities, Commercial Power, and International Energy. Regulated utilities are responsible for most of Duke Energy’s retail sales.
Why did the market punish Exelon?
Exelon Corporation’s (EXC) stock has been hammered in the last six years. In 2008, the stock was trading at ~$90 per share. Early this year, the stock was available at less than $27 per share.
Why Exelon needs to change its strategy
Exelon paid the price for aggressively pushing only one segment in its business. Now, it wants to stabilize its earnings. The retail utility business will provide stability.
Brokerages still not positive on First Energy
Brokerage firms do not seem to be positive on First Energy. Only three firms state a buy recommendation, while four brokerage firms are bearish on First Energy and hold a sell recommendation for the stock.
Falling gas prices are negative for unregulated power players
Natural gas prices fell by 9.9% for the week ending on January 30, 2015. Natural gas futures closed at $2.69 per MMBtu on Friday.
Must-know: Understanding Duke’s strategy
In recent years, Duke Energy (DUK) made its intent very clear. It concentrates on its regulated utilities—its core business—instead of other areas. The regulated utilities business is Duke’s strength.
Must-know: Duke’s top institutional owners
Duke Energy (DUK) is one of the most popular stocks for institutional investors in the utilities industry. Duke’s strong yields and stable business model have attracted institutional investors.
Electricity generation by natural gas increases
In September 2014, the net electricity generation in the US was 338.9 million megawatt-hours. Nearly 89% of the electricity was generated by coal, natural gas, and nuclear sources.
Why regulated business is Dominion’s strength
Dominion Resources (D) operates in three primary segments—Dominion Virginia Power, Dominion Energy, and Dominion Generation.
Coal capacities continue to shut down in the US
Nearly 66% of US capacity retirements in October were coal-fired power plants, and a major part of the retirements took place in Wisconsin.
Does NextEra Energy earn the Wall Street seal of approval?
More than 90% of analysts tracking NextEra recommend either a “buy” or a “hold” rating in the stock. Only two Wall Street analysts rate it as a “sell.”
Why Dominion has stellar returns for shareholders
Among large cap utility stocks, Dominion Resources (D) has been the best performing utility stock for the last five years. Dominion’s share price nearly doubled in the last five years.
Southern Company, one of the largest U.S. power producers
Southern Company’s total generation capacity of 46 GW is the third largest in the United States.
Why AES fell even after earnings beat estimates
Earnings beat consensus analyst estimates in 3Q14, but AES’ share price tumbled by more than 6% on result day due to management’s lowering of the 2014 guidance range.
Electricity production bounces back, warms utilities investors
Electricity production levels appear to be catching up with last year’s levels. Output levels are only 2% below what they were for the same week last year.
The utility sector clocks in its best weekly gains of the year
The Utilities Select Sector SPDR (XLU) generated its best weekly gains in 2014 last week. XLU was up by 3.6% for the week ending December 26.
New England and the Pacific are great regions to produce power
The US is divided into nine divisions. The Pacific and New England divisions had the highest year-over-year, or YoY, growth in electricity prices in September 2014.
Natural gas prices fall, affecting the power utilities industry
Natural gas is the second-largest source of power generation in the United States, after coal. In 2013, 27% of electricity was produced from natural gas.
Southern Company bets on solar generation
Last week, Southern Company (SO) announced that it will develop a 131 megawatt solar PV project in Georgia. The project will be part of SO’s unregulated operations.
Coal stocks are paying a price for environmental regulations
Coal stocks for power generation fell by 18.4% in the last 12 months ending in September 2014. Coal stocks for power generation decreased quickly this year.
US states showing highest jump in electricity sales
The Pacific Contiguous region had the highest growth in electricity consumption by division, growing by 2.8% YoY in October 2014 compared to October 2013.
Residential sector drags US electricity consumption
The industrial sector’s electricity consumption has been strong this year, registering positive year-over-year electricity consumption growth for the last consecutive seven months.
The Hercules of the power sector in a falling market
Three power companies had positive returns for the week ended January 2, 2015. Returns for Dynegy (DYN) and Calpine (CPN) stood out in a falling US market.
Electricity prices in Northeastern US defying gravity
In October 2014, the East North Central and New England divisions registered the highest YoY growth in electricity prices, surging by 5.1% and 4.9%, respectively.
Wholesale electricity prices mirrors natural gas price
With the exception of Texas, wholesale prices in all other US regions were low.
Hawaiian Electric stock soars on news of merger with NextEra
Hawaiian Electric Industries (HE) was the biggest gainer for the week ending December 5, 2014. It surged by 16.3% during the week on news of its merger with NextEra Energy (NEE) and closed the week at $32.78.
Deal of the week: Hawaiian Electric to merge with NextEra Energy
On December 3, 2014, NextEra Energy (NEE) announced that it will buy Hawaiian Electric Industries (HE). The deal is worth $4.3 billion. Hawaiian Electric aims to achieve its renewable energy goals by merging with NextEra Energy.
Utilities company overview: NextEra Energy
NextEra Energy (NEE) is the second-largest power company in the US after Duke Energy (DUK) in terms of market capitalization.
Florida: NextEra’s hottest market
More than 70% of NextEra’s revenue is derived from electricity sales in Florida, the largest regulated electricity market in the US in terms of sales.
NextEra takes commanding lead in green power
Natural gas, nuclear, and wind power make up 95% of NextEra’s total generation capacity. Coal, solar, oil, and hydro make up the rest.
NextEra to invest in natural gas production
Natural gas prices fluctuate based on changes in demand and supply. Producing its own natural gas will lower NextEra’s gas procurement costs significantly.
NextEra’s profit-boosting recipe? It’s all in the mix
In fiscal 2008, fuel costs constituted a whopping 57% of NextEra’s total expenses. Remarkably, these costs have been cut by more than 41% since then.
Where NextEra Energy plans to invest most of its capex
High capex can propel a company’s earnings growth along an upward trajectory, provided the rate of return exceeds the cost of capital.
The Hawaiian market and why it interests NextEra Energy
The Hawaiian electricity market is one of the most lucrative markets in the US. Currently, one out of ten homes in Hawaii uses a rooftop solar power system.
The biggest owners of NextEra Energy and what they’re thinking
NextEra’s institutional owners include some of the biggest asset management companies in the world, such as BlackRock and Vanguard.
NextEra Energy may be the greenest utility, but not the cleanest
NextEra ranks seventh in efficiency. Yet although NextEra is not the cleanest power utility in the US, its emissions are among the lowest in the industry.
U.S. weekly electricity production rebounds sharply
Weekly electricity production levels across the United States rose by 4.3% compared to the previous week. Rising production levels means higher capacity utilization and more revenues for utilities.
Low exposure to natural gas power generation hurts First Energy
First Energy’s 9% exposure to natural gas-fired power generation is quite low. This hurts First Energy, as producing electricity from natural gas provides a competitive advantage for power producers.
Who are First Energy’s biggest owners?
Among institutions, Capital Group Companies, Inc. has the highest stake in First Energy, with 55.2 million shares, or 13.1%. First Energy’s owners include some of the biggest asset management company in the world.
Where do First Energy’s valuation multiples stand against its peers?
For the current year, First Energy is trading at a higher EV/EBITDA than to its peers. However, the drop in forward EV/EBITDA multiples for First Energy is much steeper than its peers.
First Energy: An overview of a power utility
First Energy’s operations include electricity generation, electricity sales, and transmission and delivery of electricity to six million customers in six U.S. states.
First Energy’s revenue mainly from regulated T&D
First Energy operates in six northeastern U.S. states. This translates to a service territory of 65,000 square miles. These states are allowed deregulation of electricity, but First Energy’s T&D network remains regulated.
What does the near future hold for Southern Company?
A major part of Southern Company’s earnings growth will come from increased capacity. It plans to spend $5.2 billion in the next two years to add new capacities.
Teco and Northeast bleed, dragging power utilities down
Among power utilities, Teco Energy (TE) saw the biggest drop in share prices for the week ended February 13, 2015. Teco share prices fell by 7.0%.
Weekly US electricity production rises, still lower than last year
The US saw a nominal uptick in weekly electricity production for the week ended February 6, 2015. US electricity production increased by 1.6%.
AEP and Entergy see elevated growth in electricity production
Except for the Rocky Mountain, Southeast, and Pacific Southwest, all nine US divisions registered growth in week-over-week electricity production.
Why Southern Company is a great stock to own
Southern Company (SO) has provided handsome returns to its shareholders throughout its history.
Regulated business is Southern Company’s strength
Southern Company manages its regulated utility business through the following four subsidiary companies: Alabama Power, Georgia Power, Gulf Power, and Mississippi Power. These subsidiaries have a combined power generation capacity of 37,000 megawatts (or MW).
Cost structure sets Southern Company above its competitors
Fuel costs per kWh can be used to evaluate the efficiency of a power producer to produce electricity. Southern Company’s fuel cost per kWh is lower than its competitors’ in the regulated utility business.
Southern’s earnings fell in 4Q14 – in line with street estimates
Southern’s adjusted earnings per share, or EPS, decreased by more than 20% YoY this quarter. Southern’s adjusted EPS in 4Q14 was $0.38 per share.
Must-know: Risks to AES Corporation’s business
Given the nature of its business, AES Corporation (AES) faces risks relating to currency fluctuations, fuel prices, interest rates, and a scattered business model.
AES to complete exit of 9 countries by 2015
AES Corporation (AES) has operations in 20 countries across five continents. This does not help the company achieve an economy of scale.
Exelon’s steady dividend payouts
As of November 6, 2014, Exelon’s dividend yield is 3.64%. It paid $0.31 per share to investors in each quarter of the year.
US power companies: Comparing valuation multiples
Forward multiples are a useful metric for gauging relative valuation. A higher multiple usually indicates a richer valuation for a company.
Why Exelon’s utility business contributed less in 3Q14
The income from Exelon’s utility segment this quarter was lower than last year. The combined net income from Exelon subsidiaries was $256 million for the third quarter. This means a year-over-year profit drop of 5.4%.
Exelon Generation capacity driven by nuclear plants
Nuclear power plants contribute a high proportion of the electricity produced by Exelon. More than 50% of the company’s capacity is driven by its nuclear fleet.
Exelon’s strong overall stock performance in 3Q14
Exelon is one of the best-performing stocks in the power utility industry. It’s seen gains throughout the third quarter.
Exelon’s 3Q14 results beat Wall Street estimates again
Exelon’s revenue for the quarter was $6.9 billion, beating estimates by more than 21%. This is the second successive quarter that Exelon’s surprised Wall Street with higher-than-estimated earnings.
Must-know: Who owns Dominion?
Institutional investors hold most of Dominion Resources’ (D) outstanding shares. As of June 30, 2014, a total of 351.2 million shares were held by 1,069 institutions.
Why the LNG export opportunity is important for Dominion
Energy demand is rising in many Asian countries. Not only is natural gas inexpensive, it’s also one of the cleanest energy sources. This creates a huge opportunity for U.S. companies.
Why Dominion is offering a master limited partnership
Recently, Dominion (D) completed the initial public offering (or IPO) of its master limited partnership (or MLP). It offered 17.5 million MLP shares at $21 per stock.
Why Dominion has a high leverage model with low risk
Dominion Resources (D) had a total debt of $24.42 billion as of June 30, 2014. Most of the debt was raised by issuing long-term bonds and notes.
Why Dominion commands a premium
Dominion (D) trades at a premium compared to its competitors in the power utility industry. Most of the premium can be attributed to its growth prospects.
Why weather variations drive electricity demand
Weather is an important indicator for the power industry. Extreme weather drives electricity demand. This benefits power companies.
Why electricity demand is linked to GDP
Electricity is the backbone of a nation’s progress. All of the industries need electricity to operate—directly or indirectly. When a business flourishes, the electricity consumption increases.
Why coal stocked with utilities is important
Coal-fired power plants require a continuous coal supply to produce electricity. To avoid disruptions in power production, power producers need to stock coal.
Why residential and commercial segments are important
The residential and commercial sectors are the largest electricity consumers. They use almost three quarters of the electricity produced in the U.S.
Why electricity prices vary across different regions in the US
Electricity prices also vary across regions and states. Changes in regional electricity prices are also an important factor for the power utilities industry.
Why net capacity additions are important
Capacity is defined as the potential power output that power plants can generate. Each power plant has a shelf life. After the shelf life, they’re replaced with new power plants.
Why electricity demand is tepid in southern US regions
The southern region of the United States experiences warmer winters and requires less electricity. The region’s lower demand growth in winters is understandable.
Why falling natural gas prices could shake the power industry
Contrary to popular belief, falling natural gas prices affect power companies adversely. Unregulated power companies are more exposed to the risk of falling gas prices than regulated utilities.
Why the electricity price increased for the commercial sector
Over the past year, the average electricity prices in the US increased significantly across all of the sectors. The combined average electricity prices increased by 3.6%.
Natural gas pumps up Southern Company’s power generation
Natural gas forms the major source of fuel for Southern Company (SO) and constitutes 42% of its installed capacity. This benefits Southern Company to generate electricity at a lower cost.
A brief overview of Exelon’s power operations
Power generation is a significant segment for Exelon, generating more than 60% of its total revenue. The energy delivery business provides the other 40% of the company’s revenues.
NextEra efficiencies fire strong operational profits
While profits from the regulated segment have grown over the years, profits from the competitive, or unregulated, segment have fallen.
NextEra Energy’s earnings suggest steady hum for investors
NextEra estimates adjusted earnings in fiscal 2015 to range between $5.40 and $5.70, and in 2016, between $5.50 and $6. More long-term deals are in view.
Utilities performance linked to regional electricity output
The South Central and Pacific Northwest divisions saw the highest jump in week-over-week electricity production. Which utilities operate in these regions?
Why was Dynegy interested in the acquisition?
Once the deal is complete, Dynegy will add 9,000 MW and 3,400 MW capacity in the PJM and New England markets, respectively.
Utility bulls: The stocks that charged up the US power sector
Apart from Dynegy, Public Service Enterprise Group and First Energy were the top gainers in the US power sector last week.
Is Dynegy’s stock available cheap?
Dynegy currently trades at $31.03 per share. An EV/EBITDA multiple of 8x to 10x shows a big upside in Dynegy’s stock.
Duke and NextEra lead a slump in regional electricity production
Analyzing regional electricity production helps investors identify electricity demand in key micro markets within the US.
Low gas prices can make independent power producers uncomfortable
Natural gas is procured by power producers on short-term and spot contracts. Changes in gas prices affect unregulated power companies immediately.
Weekly US electricity production fell sharply due to the weather
US electricity production data is an important data point for investors tracking the power sector. The data shows the inherent demand for electricity in the country.