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Integrys Energy Corp (TEG) Annual Valuation – 2014

Integrys_logoBenjamin 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 5 Undervalued Companies for the Defensive Investor.  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 Integrys Energy (TEG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Integrys Energy Group, Inc. is a diversified energy holding company. The Company’s wholly owned subsidiaries provide products and services in both the regulated and nonregulated energy markets. In addition, it has a 34% equity interest in ATC (an electric transmission company operating in Wisconsin, Michigan, Minnesota, and Illinois). During the year ended December 31, 2012, the Company operates in five segments: natural gas utility segment, electric utility segment, electric transmission investment segment, Integrys Energy Services and the holding company and other segment. Its regulated natural gas utilities provide service to approximately 1,690,000 residential, commercial and industrial, transportation, and other customers. On April 3, 2013, Wisconsin Public Service Corporation, a unit of the Company, acquired Fox Energy Co LLC, from General Electric Co and Tyr Energy Inc.

TEG Chart

TEG data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  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 – FAIL
  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 = 2/5

  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 – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $61.47
MG Value $127.49
MG Opinion Undervalued
Value Based on 3% Growth $48.01
Value Based on 0% Growth $28.15
Market Implied Growth Rate 5.03%
Net Current Asset Value (NCAV) -$75.65
PEmg 18.56
Current Ratio 1.22
PB Ratio 1.50

Balance Sheet – 12/31/2013

Current Assets $1,972,200,000
Current Liabilities $1,622,100,000
Total Debt $2,956,200,000
Total Assets $11,243,500,000
Intangible Assets $662,100,000
Total Liabilities $7,982,200,000
Outstanding Shares 79,450,000

Earnings Per Share

2013 $4.33
2012 $3.67
2011 $2.88
2010 $2.83
2009 -$0.96
2008 $1.58
2007 $2.48
2006 $3.50
2005 $4.11
2004 $4.07

Earnings Per Share – ModernGraham

2013 $3.31
2012 $2.53
2011 $1.90
2010 $1.57
2009 $1.34
2008 $2.71

Dividend History

TEG Dividend Chart

TEG Dividend data by YCharts

Conclusion:

Integrys Energy does not qualify for either the Defensive Investor or the Enterprising Investor.  The company’s current ratio is too low and there has been insufficient earnings stability or growth over the ten year historical period for the Defensive Investor.  The Enterprising Investor is concerned with the high level of debt relative to the current assets and the lack of earnings growth over the five year period.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham’s valuation of Exxon Mobil (XOM) and 5 Outstanding Dow Components.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.34 in 2009 to $3.31 in 2013.  This solid level of demonstrated growth outpaces the market’s implied estimate of 5.03% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is above the market price.

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 Integrys Energy Corp (TEG)?  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 Integrys Energy Corp (TEG) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

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

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