SCANA Corporation (SCG) Annual Valuation

SCANA_logo_2014-01-18_08-49Benjamin 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.  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 specific look at how SCANA Corporation fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): SCANA Corporation is a holding company. The Company, through its wholly owned regulated subsidiaries, is primarily engaged in the generation, transmission, distribution and sale of electricity in parts of South Carolina and in the purchase, transmission and sale of natural gas in portions of North Carolina and South Carolina. The Company operates in five segments: Electric Operations, Gas Distribution, Retail Gas Marketing, Energy Marketing and all other. Through a wholly owned non-regulated subsidiary, it markets natural gas to retail customers in Georgia and to wholesale customers primarily in the southeast. Other wholly owned non-regulated subsidiaries provide fiber optic and other telecommunications services and provide service contracts to homeowners on certain home appliances and heating and air conditioning units. A service company subsidiary of SCANA provides administrative, management and other services to SCANA and its subsidiaries.

SCG Chart

SCG data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $49.18
MG Value $38.13
MG Opinion Overvalued
Value Based on 3% Growth $45.68
Value Based on 0% Growth $26.78
Market Implied Growth Rate 3.56%
NCAV -$64.54
PEmg 15.61
Current Ratio 1.12
PB Ratio 1.50

Balance Sheet – 9/30/2013

Current Assets $1,351,000,000
Current Liabilities $1,203,000,000
Total Debt $5,431,000,000
Total Assets $14,997,000,000
Intangible Assets $230,000,000
Total Liabilities $10,399,000,000
Outstanding Shares 140,200,000

Earnings Per Share

2013 $3.39
2012 $3.15
2011 $2.97
2010 $2.98
2009 $2.83
2008 $2.95
2007 $2.74
2006 $2.63
2005 $2.75
2004 $2.30
2003 $2.54

Earnings Per Share – ModernGraham 

2013 $3.15
2012 $3.01
2011 $2.93
2010 $2.88
2009 $2.81
2008 $2.76

Dividend History

SCG Dividend Chart

SCG Dividend data by YCharts

Conclusion:

SCANA Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The company fails the Defensive Investor’s requirements by having a low current ratio and insufficient earnings growth over the ten year historical period.  In addition, the company has too much debt relative to its current assets for the Enterprising Investor to be interested.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities, such as by reviewing a list of 5 Low PEmg Companies for the Enterprising Investor and a list of 5 Undervalued Companies for the Enterprising Investor.  From a valuation standpoint, the company has grown its EPSmg (normalized earnings) from $2.81 in 2009 to $3.15 for 2013.  This is a low level of demonstrated growth that does not support the market’s current estimate of earnings growth in the amount of 3.56%.  The ModernGraham valuation model accordingly returns an intrinsic value estimate that is below the market price, and the company would appear to be overvalued.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on SCANA Corporation (SCG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in SCANA Corporation (SCG) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.


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One response to “SCANA Corporation (SCG) Annual Valuation”

  1. Jim Merritt Avatar
    Jim Merritt

    Ben,
    Graham excluded requirement # 2 for public utilities for the defensive investor. Can I assume you do not consider that to be the case today with your analysis of SCANA.
    Jim