Alliant Energy: A Mid-Cap Utility With Growth and Yield
Utility companies are often perceived as boring investments, but sometimes they make up an important part of an investors portfolio by providing above market average dividend yields. An underfollowed mid-cap utility with a history of strong operations is Alliant Energy Corp. (NASDAQ:LNT).
The utility holding company provides regulated electricity and natural gas services. Interstate Power and Light Co., a subsidiary, primarily generates and distributes electricity and natural gas to retail customers in Iowa, Minnesota and Illinois. Another subsidiary, Wisconsin Power and Light Co., generates and distributes electricity and transports natural gas to retail customers in Wisconsin.
It serves retail customers in the farming, agriculture, industrial manufacturing, chemical and packaging and food industries. The company owns and operates a short-line rail freight service in Iowa, a barge, rail and truck freight terminal on the Mississippi River and a rail-served warehouse in Iowa.
Incorporated in 1981, the company is headquartered in Madison, Wisconsin. It currently has a market capitalization of $13.7 billion.
Clean energy strategy
Alliant has created a roadmap to achieve a resilient, affordable and clean energy future. The company plans to replace coal generation with a balanced mix of renewable and flexible energy. It is also adding approximately 1.5 gigawatts of solar between 2022 and 2024 and adding roughly 350 megawatts of battery storage by 2025. Part of the plan is to reduce coal and emissions by retiring or fuel-switching nearly 1.6 GW of coal generation between 2020 and 2026.
There are additional plans for more renewable and other generation sources to strengthen the portfolio, improve seasonal reliability and help meet customer demand.
There are also efforts to explore future technology solutions, including long-duration storage and sustainable fuel sources, investments in fault detection, self-healing, fiber and an advanced distribution management system, which supports reduced operating costs and a better customer experience.
Financial review
For the first quarter ending March 31, revenue increased approximately 1% to $1.07 billion and operating income decreased 10.4% to $222 million. The primary drivers were lower retail electric and gas sales due to the effects of warmer than normal temperatures on customer demand in 2023, which compares to an increase in sales in the first quarter of 2022 due to the impacts of colder than normal temperatures on customer demand. In addition, higher interest expense and timing of income tax expense affected net earnings.
The balance sheet remains strong with shareholders' equity of $6.3 billion and net property, plant and equipment of $16.4 billion.
In a statement, Alliant CEO John Larsen said, We had a solid start to the year and are well positioned to deliver on our long-term growth objectives. With the exception of the mild weather, results were in line with our expectations, allowing us to reaffirm our 2023 earnings guidance. Guided by our purpose-driven clean energy transition, we are on track to place 840 MW of utility scale solar in service by the first half of 2024.
Valuation
The company recently reaffirmed its earnings per share guidance for 2023 in the range of $2.82 to $2.96. There are a lot of notable assumptions in this guidance, including the ability of IPL and WPL to earn their authorized rates of return, a stable economy and the subsequent implications on utility sales, normal temperatures in utility service territories, execution on cost control measures, execution of capital expenditure and financing plans and a consolidated effected tax rate of 2%.
The Wall Street consensus estimate is $2.89, which puts the company selling at a price-earnings ratio of 18.8, which is roughly in line with the sector average. The 2024 ratio drops to 17.6 based on 2024 estimates of $3.09.
Further, the GuruFocus discounted cash flow calculator creates a value of approximately $43 when using earnings per share of $2.89 as the starting point and a 6% long-term growth rate.
The company currently pays an annualized dividend of $1.81, which equates to a 3.26% dividend yield. The payout ratio is 0.62, which is not too far out of line for a utility stock.
There are four analyst currently covering the company with an average price target of $53.88, with a high target of $58 and a low target of $49.
Guru trades
Gurus who have added to their positions recently include Mairs and Power (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio). Investors who have reduced or sold out of their positions include Ray Dalio (Trades, Portfolio)'s Bridgewater Associates and Jim Simons (Trades, Portfolio)' Renaissance Technologies.
Summary
The company has produced 5% to 7% earnings growth for the 13th consecutive year and, if earnings estimates are correct for 2024, it will deliver again next year. Dividends have also grown consistently at a rate of approximately 6%.
With an above-average dividend yield and mid-single-digit growth, the stock could be an attractive opportunity for investors seeking both high yield and decent levels of growth.
This article first appeared on GuruFocus.
