Xcel Energy Quarterly Valuation – December 2014 $XEL

Xcel_EnergyBenjamin 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 5 Undervalued Dow Components to Research – December 2014.  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 Xcel Energy (XEL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance):  Xcel Energy Inc. is a holding company with subsidiaries engaged primarily in the utility business. During the year ended December 31, 2012, the Company’s operations included the activity of four wholly owned utility subsidiaries that serve electric and natural gas customers in eight states. These utility subsidiaries are NSP-Minnesota, NSP-Wisconsin, PSCo and SPS, and serve customers in portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. Along with WYCO, a joint venture formed with CIG to develop and lease natural gas pipelines, storage, and compression facilities, and WGI, an interstate natural gas pipeline company, these companies comprise the continuing regulated utility operations.

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

  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 - 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 $34.53
MG Value $29.68
MG Opinion Overvalued
Value Based on 3% Growth $27.07
Value Based on 0% Growth $15.87
Market Implied Growth Rate 5.00%
NCAV -$43.47
PEmg 18.50
Current Ratio 0.92
PB Ratio 1.72

Balance Sheet – September 2014

Current Assets $3,197,000,000
Current Liabilities $3,471,000,000
Total Debt $11,502,000,000
Total Assets $35,363,000,000
Intangible Assets $0
Total Liabilities $25,209,000,000
Outstanding Shares 506,400,000

Earnings Per Share

2014 (estimate) $1.95
2013 $1.91
2012 $1.85
2011 $1.72
2010 $1.62
2009 $1.48
2008 $1.46
2007 $1.35
2006 $1.36
2005 $1.23
2004 $0.87

Earnings Per Share – ModernGraham

2014 (estimate) $1.87
2013 $1.79
2012 $1.69
2011 $1.59
2010 $1.50
2009 $1.42

Dividend History


Xcel Energy qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio, and the Enterprising Investor is willing to overlook concerns because the company passes the more conservative requirements of the Defensive Investor.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.50 in 2010 to only $1.87 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Xcel Energy for greater perspective!

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 Xcel Energy (XEL)?  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.

Disclaimer:  The author did not hold a position in Xcel Energy (XEL) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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