The Utility of the Energy Renaissance

The most economically vibrant areas in the country are those involved in the North American 'energy renaissance.' These pockets of economic activity have much lower unemployment rates and higher job growth than the rest of the country.

Consider this: the two metropolitan areas with the lowest unemployment rates are Midland-Odessa, TX, followed by Bismarck, ND. Both of these sit on shale plays: The Wolfcamp and the Bakken, respectively. The metropolitan area with the highest job growth is consistently Houston, TX, the "buckle" of the Gulf Coast petrochemical belt and the headquarters of most American energy companies.

Within the utilities sector, it should be no surprise that the companies with the healthiest growth prospects will be those utilities that serve areas involved in the "energy renaissance." This includes horizontal drilling areas, but is not limited to just that.

Houston Ship Channel, America's most important energy hub. Source: Wikipedia

Due to various regulations, producers cannot easily export oil or gas to other countries. This has resulted in lower realized oil and gas prices within the U.S. Because natural gas is an important input cost in so many industrial products, low U.S. gas prices have given U.S. manufacturers a newfound, competitive edge. This has led to an industrial renaissance along the U.S. Gulf Coast, which is home to many refining, petrochemical, and plastics facilities. 

Entergy Corporation (NYSE: ETR  ) is in not one, but two energy renaissance sweet spots, one of which has only begun to deliver load growth for the company. Entergy operates in two segments. The first is nuclear power generation in New England. That is a fairly stable business which sells its power to transmission companies in that area. The second part of Entergy, and the more promising one for now, is its transmission and distribution business in Arkansas, Mississippi, eastern Texas, and Louisiana.

Strong growth prospects
Entergy operates all along the Louisiana Gulf Coast, an area that is economically flourishing thanks to low natural gas prices and the subsequent industrial resurgence. In addition to the competitive advantage afforded to the Gulf Coast industrial complex, Entergy's utility business has focused on nuclear energy and natural gas, both of which are low-cost sources of power. Unlike coal, nuclear energy and natural gas remain relatively unharassed by federal regulators at this time.

Thanks to friendly state-level regulations, the burden placed on Entergy to build high-cost, inefficient "green energy" generation has been relatively light. This has allowed the utility to keep its prices low and provide yet another competitive advantage to industry in the region. Gulf Coast industry will drive 5%-7% net income growth in the utility segment through at least 2016. This puts Entergy ahead of even top-tier growth utilities such as American Electric Power (NYSE: AEP  ) and Wisconsin Energy (NYSE: WEC  ) . 

I think 5%-7% growth is very understated. This is because eastern Louisiana and southwestern Mississippi are also home to the nascent Tuscaloosa Marine Shale, a play that has only begun to develop. I believe that any continued development in the Tuscaloosa Marine Shale will build upon the 5%-7% net income growth rate. Entergy has a lot of growth upside.

Bottom line: Help yourself
Unlike many of the other top-tier growth utilities, Entergy still trades at a very reasonable valuation of around just 13 times trailing earnings. It also yields a generous 4.5%. I believe that part of this is because Wall Street has not yet fully woken up to the fact that Entergy has upside from not only the Gulf Coast industrial complex but also the Tuscaloosa Marine Shale. In addition, Entergy benefits from business-friendly regulations which allow the utility segment to transmit and distribute low-cost energy. 

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2972564, ~/Articles/ArticleHandler.aspx, 9/3/2015 3:44:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Casey Hoerth

Casey is Fool contributor covering Energy companies, and sometimes dividend payers, in general. Follow me at

Today's Market

updated Moments ago Sponsored by:
DOW 16,377.14 25.76 0.16%
S&P 500 1,950.45 1.59 0.08%
NASD 4,742.98 -7.00 -0.15%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 3:28 PM
AEP $53.28 Up +0.27 +0.51%
American Electric… CAPS Rating: ****
ETR $62.93 Up +0.17 +0.27%
Entergy Corp CAPS Rating: *****
WEC $47.00 Up +0.30 +0.64%
Wisconsin Energy CAPS Rating: *****