Measuring NorthWestern Corporation’s (NYSE:NWE) track record of past performance is an insightful exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess NWE’s recent performance announced on 30 June 2018 and compare these figures to its historical trend and industry movements.
How NWE fared against its long-term earnings performance and its industry
NWE’s trailing twelve-month earnings (from 30 June 2018) of US$186.6m has jumped 11.6% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 11.8%, indicating the rate at which NWE is growing has slowed down. Why could this be happening? Well, let’s look at what’s transpiring with margins and whether the rest of the industry is feeling the heat.
In the last few years, revenue growth has fallen behind which indicates that NorthWestern’s bottom line has been propelled by unmaintainable cost-reductions. Eyeballing growth from a sector-level, the US integrated utilities industry has been growing its average earnings by double-digit 10.9% in the prior twelve months, and a more subdued 6.8% over the past five. This growth is a median of profitable companies of 19 Integrated Utilities companies in US including innogy, Avista and Ameren. This means any uplift the industry is profiting from, NorthWestern is able to amplify this to its advantage.
In terms of returns from investment, NorthWestern has fallen short of achieving a 20% return on equity (ROE), recording 9.8% instead. However, its return on assets (ROA) of 5.1% exceeds the US Integrated Utilities industry of 4.7%, indicating NorthWestern has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for NorthWestern’s debt level, has increased over the past 3 years from 3.0% to 3.8%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 115% to 107% over the past 5 years.
What does this mean?
NorthWestern’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as NorthWestern gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research NorthWestern to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NWE’s future growth? Take a look at our free research report of analyst consensus for NWE’s outlook.
- Financial Health: Are NWE’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.