E.ON the Icon

By and large, people don't look at utility stocks with an eye toward making any real money -- at least not from capital gains. According to the books, utilities are supposed to be safe, regulated, income generators that will never do anything all that exciting or unexpected. Though that might still be true for the sector as a whole (and I emphasize the word "might"), I don't believe it's necessarily true for Germany's E.ON (NYSE: EON  ) .

Another quarter is on the books, so it's time for another ode to one of my favorite utility stories out there. Revenue rose another 24% for the second quarter, and although reported earnings were down because of year-ago divestitures, adjusted EBIT and EBITDA grew nicely, with operating earnings up more than 20%.

Admittedly, E.ON doesn't earn the sort of returns on capital that I normally look for in an investment candidate, and that's part of the reason why I haven't purchased the shares so far (although that has cost me a fair bit of appreciation in the stock). That said, returns are improving, and I think once the company has all of its pieces on the board, it will be able to drive higher margins and returns over time.

Speaking of those pieces, the battle for Spain's Endesa (NYSE: ELE  ) is far from over. Although Spanish authorities approved the deal, it was with numerous conditions and stipulations that would require E.ON to sell about one-third of Endesa's generating assets. E.ON has appealed, Endesa has appealed, and E.U. officials continue to threaten, cajole, and coerce Spanish officials into playing by E.U. rules regarding these sorts of business combinations. Ultimately, I think E.ON will get Endesa, and on workable terms, but there's a lot of nationalism and jurisdictional ego involved in the process right now.

Interestingly enough, for all of their differences, E.ON, United Utilities (NYSE: UU  ) , and CEMIG (NYSE: CIG  ) shares have all done pretty well over the past year, while another global idea, HuanengPower (NYSE: HNP  ) , has been quite the laggard. Now, I can't emphasize enough that these four companies are exceptionally different and are grouped together only because I follow all of them fairly regularly. Nevertheless, I'm bullish on global power demand, and all four might be worth a look, depending on your appetite for risk. As perhaps the most stable of the four, E.ON certainly merits ongoing consideration for folks who'd like some international power exposure but without some of the volatility of emerging-market plays.

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Whether you want to goAround the World in 80 Minutesor get paid to invest, The Motley Fool has investment advice for you. You can take a look at any of our newsletters for 30 days. United Utilities is an Income Investor selection.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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