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Xcel Energy Inc Valuation – May 2016 $XEL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Xcel Energy Inc (XEL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Xcel Energy Inc. is a public utility holding company. The Company’s operations include activity of four utility subsidiaries that serve electric and natural gas customers. Its segments are regulated electric utility, regulated natural gas utility and all other. The regulated electric utility segment generates, transmits and distributes electricity in Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Colorado, Texas and New Mexico. The regulated electric utility segment also includes commodity trading operations. The regulated natural gas utility segment transports, stores and distributes natural gas primarily in portions of Minnesota, Wisconsin, North Dakota, Michigan and Colorado. The all other category primarily includes steam revenue, appliance repair services, nonutility real estate activities, revenues associated with processing solid waste into refuse-derived fuel and investments in rental housing projects that qualify for low-income housing tax credits.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of XEL – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $21,054,497,921 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.86 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 43.12% Pass
6. Moderate PEmg Ratio PEmg < 20 20.45 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.98 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.86 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -28.84 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

XEL value Chart May 2016

EPSmg $2.02
MG Growth Estimate 2.93%
MG Value $29.07
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $29.36
MG Value based on 0% Growth $17.21
Market Implied Growth Rate 5.98%
Current Price $41.41
% of Intrinsic Value 142.47%

Xcel Energy Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.69 in 2012 to an estimated $2.02 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Xcel Energy Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

XEL Charts May 2016

Net Current Asset Value (NCAV) -$50.41
Graham Number $32.04
PEmg 20.45
Current Ratio 0.86
PB Ratio 1.98
Current Dividend $1.30
Dividend Yield 3.14%
Number of Consecutive Years of Dividend Growth 13

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $2,732,617,000
Total Current Liabilities $3,188,568,000
Long-term Debt $13,148,395,000
Total Assets $39,069,844,000
Intangible Assets $0
Total Liabilities $28,398,210,000
Shares Outstanding (Diluted Average) 509,150,000

Earnings Per Share History

Next Fiscal Year Estimate $2.17
12/1/2015 $1.94
12/1/2014 $2.03
12/1/2013 $1.91
12/1/2012 $1.85
12/1/2011 $1.72
12/1/2010 $1.62
12/1/2009 $1.48
12/1/2008 $1.46
12/1/2007 $1.35
12/1/2006 $1.36
12/1/2005 $1.23
12/1/2004 $0.87
12/1/2003 $1.50
12/1/2002 -$5.82
12/1/2001 $2.30
12/1/2000 $1.54
12/1/1999 $1.43
12/1/1998 $1.84
12/1/1997 $1.61
12/1/1996 $1.91

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.02
12/1/2015 $1.93
12/1/2014 $1.89
12/1/2013 $1.79
12/1/2012 $1.69
12/1/2011 $1.59
12/1/2010 $1.50
12/1/2009 $1.42
12/1/2008 $1.34
12/1/2007 $1.27
12/1/2006 $0.77
12/1/2005 $0.32
12/1/2004 -$0.06
12/1/2003 -$0.29
12/1/2002 -$0.71
12/1/2001 $1.82
12/1/2000 $1.60

Recommended Reading:

Other ModernGraham posts about the company

Xcel Energy Inc. Analysis – September 2015 Update $XEL
Xcel Energy Inc. Analysis – September 2015 Update $XEL
The 10 Best Stocks For Value Investors This Week – 6/20/15
Xcel Energy Analysis – June 2015 Update $XEL
18 Companies in the Spotlight This Week – 3/21/15

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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