2 Profitable Utility Companies to Consider as California Blackouts Continue
After wildfires ravaged California last year, utility company PG&E Corp. (NYSE:PCG) is being more proactive in trying to prevent fires this year by implementing blackouts across the state as it works to update its aging electrical system. The company, which is the largest utility in the U.S., announced on Monday two fires in the San Francisco Bay Area may have been started by its power lines. While the company's stock has suffered greatly over the past year, dropping by more than 50%, other utility companies may be thriving.
According to the GuruFocus All-in-One Screener, a Premium feature, two electric utility companies with high profitability ratings and business predictability ranks of at least two out of five stars as of Oct. 29 are UGI Corp. (NYSE:UGI) and WEC Energy Group Inc. (NYSE:WEC).
UGI
The King of Prussia, Pennsylvania-based natural gas and electricity distributor has a $9.92 billion market cap; its shares were trading around $47.46 on Tuesday with a price-earnings ratio of 25.38, a price-book ratio of 2.16 and a price-sales ratio of 1.14.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
As a result of issuing $255.3 million in new long-term debt over the past three years, GuruFocus rated UGI's financial strength 4 out of 10. In addition, the company has insufficient interest coverage and the Altman Z-Score of 1.94 indicates the company is under some financial pressure as it has recorded an operating loss over the past three years.
The company's profitability fared better, scoring a 7 out of 10 rating on the back of operating margin expansion and returns that outperform over half of its competitors. UGI also has a moderate Piotroski F-Score of 4, which suggests operations are stable. The two-star business predictability rank is on watch as a result of the company recording a decline in revenue per share over the last five years. According to GuruFocus, companies with this rank typically see their stocks gain an average of 6% per annum over a 10-year period.
Of the gurus invested in UGI, First Eagle Investment (Trades, Portfolio) has the largest stake with 1.93% of outstanding shares. Other top guru shareholders are Jim Simons (Trades, Portfolio)' Renaissance Technologies, Diamond Hill Capital (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).
WEC Energy
The natural gas and electricity provider, which is headquartered in Milwaukee, has a market cap of $29.19 billion; its shares were trading around $92.20 on Tuesday with a price-earnings ratio of 26.74, a price-book ratio of 2.92 and a price-sales ratio of 3.81.
According to the Peter Lynch chart, the stock is overvalued.
WEC Energy's financial strength was rated 3 out of 10 by GuruFocus. As a result of issuing approximately $2.1 billion in new long-term debt, the company has low interest coverage. In addition, the Altman Z-Score of 1.31 warns the company is in distress and could be at risk of going bankrupt.
The company's profitability scored a 7 out of 10 rating. Although the operating margin is in decline, it still outperforms more than half of its competitors. WEC Energy is also driven by strong returns and a moderate Piotroski F-Score of 4. The 2.5-star business predictability rank is on watch as a result of a slowdown in revenue per share growth over the past 12 months. GuruFocus says companies with this rank typically see their stocks gain an average of 7.3% per year.
With 1.10% of outstanding shares, Simons' firm is the company's largest guru shareholder. Pioneer, Robert Bruce (Trades, Portfolio), Mairs and Power (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also own the stock.
Disclosure: No positions.
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This article first appeared on GuruFocus.
