Wisconsin Energy Corp (WEC) Annual Valuation – 2014

WEC_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 Enterprising 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 Wisconsin Energy Corp (WEC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Wisconsin Energy Corporation is a diversified holding company. The Company operates primarily through two segments: a utility energy segment and a non-utility energy segment. Its primary subsidiaries are Wisconsin Electric Power Company (Wisconsin Electric), Wisconsin Gas LLC (Wisconsin Gas) and W.E. Power, LLC (We Power). Its utility energy segment consists of Wisconsin Electric and Wisconsin Gas, operating together under the trade name of We Energies. Its non-utility energy segment derives its revenues primarily from the ownership of electric power generating facilities for long-term lease to Wisconsin Electric. Its non-utility energy segment derives its revenues primarily from the ownership of electric power generating facilities for long-term lease to Wisconsin Electric. As of December 31, 2012, the Company have a 26.2% interest in ATC.

WEC Chart

WEC 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 – 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 – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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 $47.61
MG Value $54.94
MG Opinion Fairly Valued
Value Based on 3% Growth $32.80
Value Based on 0% Growth $19.23
Market Implied Growth Rate 6.27%
Net Current Asset Value (NCAV) -$39.63
PEmg 21.05
Current Ratio 1.04
PB Ratio 2.52

Balance Sheet – 12/31/2013

Current Assets $1,551,100,000
Current Liabilities $1,496,400,000
Total Debt $4,363,200,000
Total Assets $14,769,400,000
Intangible Assets $441,900,000
Total Liabilities $10,506,000,000
Outstanding Shares 225,960,000

Earnings Per Share

2013 $2.51
2012 $2.35
2011 $2.18
2010 $1.92
2009 $1.60
2008 $1.52
2007 $1.42
2006 $1.32
2005 $1.25
2004 $0.52

Earnings Per Share – ModernGraham

2013 $2.26
2012 $2.06
2011 $1.86
2010 $1.65
2009 $1.48
2008 $1.35

Dividend History

WEC Dividend Chart

WEC Dividend data by YCharts


Wisconsin Energy Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s failings are its low current ratio and its high PEmg and PB ratios.  The Enterprising Investor is concerned about the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities through a review of 5 Undervalued Companies for the Defensive Investor and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation standpoint, the company appears to be fairly valued, having grown its EPSmg (normalized earnings) from $1.48 in 2009 to $2.26 in 2013.  This demonstrated growth supports the market’s implied estimate of 6.27% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to 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 Wisconsin Energy Corp (WEC)?  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 Wisconsin Energy Corp (WEC) 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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