Utilities could use some decent news in the wake of Superstorm Sandy, and Northeast Utilities' (ES -0.53%) new earnings report hit the bulls eye. But with a hurricane rocking this stock's steady rise, can Northeast keep its momentum going?
Number crunching
Comparing Northeast's newest numbers to a year ago involves some interpretation, since a $20 billion merger with NStar in April 2012 boosted the company's customer base from around 2 million to 3.5 million customers.
Northeast reported operating revenues of $1.86 billion for Q3 2012, almost 70% higher than its solo sales a year before. Likewise, earnings shot up from $90 million ($0.51 EPS) to $208 million ($0.66 EPS).
Earnings per share is the most important factor to consider here, since the merger also involved NStar's shareholders receiving 1.3 Northeast Utilities shares for every NStar share they currently held. Analysts were expecting EPS of $0.66, so Northeast's quarterly earnings came through.
In a company press release, President and CEO Thomas May writes: "These financial results are in-line with our recently announced 2012 recurring earnings guidance of between $2.25 and $2.30 per share and speak well of our efforts to create a high performing, successful, customer-focused company."
Rising net income is not news for this company, either. Take a look at how it's managed to raise profit over the past five years, even as revenue has dipped:
Source: e*trade.com
Stormy weather
Change isn't always a choice. Just six months after the merger was completed, Sandy hit Northeast hard. But unlike other companies, this utility came prepared. Connecticut Light & Power, the 2 million customer subsidiary of Northeast, is one of a surprisingly few number of utilities that pocket money in a "storm reserve" for blind dates with the likes of Katrina, Irene, and Sandy.
Reflecting on his company's response to Hurricane Sandy, Thomas May noted that the utility's 9,000 employees, supported by thousands of contractors, continue to work around the clock to restore power to customers.
FirstEnergy (FE 0.70%) also preemptively increased its staff to three times its normal size, although 1.8 million New Jersey customers are still without power. In the Big Apple, New York's Consolidated Edison (ED 0.73%) still has weeks of work ahead to repair its flooded electrical system. Neither company has a storm reserve in place, but they'll undoubtedly be begging regulators to let them tack on a storm surcharge to their customers' latest bills.
A big step back
But storms happen. The real question that investors should be asking themselves is: Is Northeast's recent merger and strategic decision-making going to create long-term value?
The answer: Probably. For a quick and dirty look at how this company's valuation is playing out, let's examine a few key factors.
|
Dividend Yield |
Debt-to-Equity Ratio |
Price-to-Book Ratio | |
|---|---|---|---|
|
Exelon (EXC -0.29%) |
5.9% |
0.9 |
1.4 |
|
National Grid (NGG -0.09%) |
5.5% |
2.5 |
2.8 |
|
Duke Energy (DUK 0.07%) |
4.8% |
0.9 |
2.0 |
|
FirstEnergy |
4.8% |
1.4 |
1.4 |
|
Dominion Resources (D -0.51%) |
4.0% |
1.7 |
2.6 |
|
Northeast Utilities |
3.5% |
1.0 |
1.4 |
|
NextEra Energy (NEE 0.51%) |
3.5% |
1.6 |
1.9 |
Source: e*trade.com
Northeast offers one of the lowest dividends around for utilities, but it's not a pure dividend play. With decent debt and a solid book value, this company's stock has surged over 60% since the Great Recession:
Foolish bottom line
Over the next 10 years, Northeast estimates that it will gain around $780 million from the merger savings. Short-term investors worry over short-term concessions, but the value of a larger and stronger utility is already showing itself in the company's ability to effectively respond to the devastating effects of Hurricane Sandy, and it won't stop there. I'm making an "outperform" call on my Motley Fool Caps page, and am looking forward to seeing where Northeast heads in the next few years.
