Canadian Utilities Ltd Valuation – Initial Coverage $TSE:CU

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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  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 Canadian Utilities Ltd (TSE:CU) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Canadian Utilities Limited is an ATCO company. The Company’s segments include Electricity, Pipelines & Liquids and Corporate & Other. The Electricity segment includes businesses of ATCO Electric, ATCO Power and ATCO Power Australia that provide power generation, distributed generation, and electricity distribution, transmission and infrastructure development in northern and central east Alberta, the Yukon, the Northwest Territories and Australia. The Pipelines & Liquids segment includes ATCO Gas, ATCO Pipelines, ATCO Gas Australia, ATCO Energy Solutions and ATCO Pipelines Mexico, which offer natural gas transmission, distribution and infrastructure development, and natural gas liquids storage and processing, among others throughout Alberta, the Lloydminster area of Saskatchewan and Western Australia. The Corporate & Other segment includes commercial real estate owned by the Company in Alberta, business development activities associated with ATCO Energy and its expansion into Mexico.

CU Chart

CU data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[otw_shortcode_button href=”” size=”medium” icon_position=”left” shape=”square”]Learn More About Premium Membership[/otw_shortcode_button]


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CU – February 2017

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 $10,083,370,898 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.10 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 6.56% Fail
6. Moderate PEmg Ratio PEmg < 20 18.88 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.63 Pass
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 1.10 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 87.62 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

EPSmg $2.00
MG Growth Estimate 0.51%
MG Value $19.05
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $29.05
MG Value based on 0% Growth $17.03
Market Implied Growth Rate 5.19%
Current Price $37.82
% of Intrinsic Value 198.48%

Canadian Utilities Limited 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, insufficient earnings growth over the last ten years. 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 $1.94 in 2013 to an estimated $2 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.19% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Canadian Utilities Limited revealed the company was trading above its Graham Number of $30.05. The company pays a dividend of $1.3 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.88, which was below the industry average of 23.36, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-43.24.

Canadian Utilities Limited scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$43.24
Graham Number $30.05
PEmg 18.88
Current Ratio 1.10
PB Ratio 1.63
Current Dividend $1.30
Dividend Yield 3.44%
Number of Consecutive Years of Dividend Growth 10


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $985,000,000
Total Current Liabilities $892,000,000
Long-Term Debt $8,149,000,000
Total Assets $18,781,000,000
Intangible Assets $526,000,000
Total Liabilities $12,563,000,000
Shares Outstanding (Diluted Average) 267,777,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.27
Dec2016 $2.06
Dec2015 $1.11
Dec2014 $2.52
Dec2013 $2.09
Dec2012 $2.02
Dec2011 $1.83
Dec2010 $1.61
Dec2009 $1.86
Dec2008 $1.65
Dec2007 $1.54
Dec2006 $1.28
Dec2005 $1.04
Dec2004 $1.22
Dec2003 $1.02
Dec2002 $1.20
Dec2001 $0.93
Dec2000 $0.90
Dec1999 $0.78
Dec1998 $0.75
Dec1997 $0.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.00
Dec2016 $1.90
Dec2015 $1.85
Dec2014 $2.15
Dec2013 $1.94
Dec2012 $1.84
Dec2011 $1.73
Dec2010 $1.65
Dec2009 $1.60
Dec2008 $1.43
Dec2007 $1.29
Dec2006 $1.16
Dec2005 $1.10
Dec2004 $1.10
Dec2003 $1.02
Dec2002 $0.98
Dec2001 $0.85

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

American Electric Power Company Inc Valuation – March 2017 $AEP
American Water Works Company Inc Valuation – Initial Coverage $AWK
Alliant Energy Corp Valuation – Initial Coverage $LNT
Consolidated Edison Inc Valuation – February 2017 $ED
Duke Energy Corp Valuation – February 2017 $DUK
Spire Inc Valuation – Initial Coverage $SR
Ameren Corp Valuation – February 2017 $AEE
Sempra Energy Valuation – February 2017 $SRE
Capital Power Corp Valuation – Initial Coverage $TSE:CPX
Superior Plus Corp Valuation – Initial Coverage $TSE:SPB


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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.