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Xcel Energy Inc Valuation – February 2018 $XEL

Company Profile (obtained from Marketwatch): Xcel Energy, Inc. operates as a holding company, which engages in the generation, purchase, transmission, distribution and sale of electricity and natural gas business through its subsidiaries. It operates through the following segments: Regulated Electric Utility, Regulated Natural Gas Utility and All Others. The Regulated Electric Utility segment generates, transmits and distributes electricity primarily in portions of Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Colorado, Texas and New Mexico. In addition, this segment includes sales for resale and provides wholesale transmission service to various entities in the United States. It also includes commodity trading operations. The Regulated Natural Gas Utility segment transports, stores, and distributes natural gas primarily in portions of Minnesota, Wisconsin, North Dakota, Michigan and Colorado. The All Others segment engages in steam, appliance repair services, nonutility real estate activities, processing solid waste into refuse-derived fuel and investments in rental housing projects that qualify for low-income housing tax credits. The company was founded in 1909 and is headquartered in Minneapolis, MN.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of XEL – February 2018

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 $22,189,239,554 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.73 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 42.32% Pass
6. Moderate PEmg Ratio PEmg < 20 19.54 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.95 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 0.73 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -13.02 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 $2.24
MG Growth Estimate 2.71%
MG Value $31.15
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $32.42
MG Value based on 0% Growth $19.01
Market Implied Growth Rate 5.52%
Current Price $43.70
% of Intrinsic Value 140.30%

Xcel Energy Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. 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 feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.89 in 2014 to an estimated $2.24 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.52% 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 Xcel Energy Inc revealed the company was trading above its Graham Number of $34.9. The company pays a dividend of $1.44 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.54, which was below the industry average of 24.79, 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 $-56.02.

Xcel Energy Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$56.02
Graham Number $34.90
PEmg 19.54
Current Ratio 0.73
PB Ratio 1.95
Current Dividend $1.44
Dividend Yield 3.30%
Number of Consecutive Years of Dividend Growth 14

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $2,973,000,000
Total Current Liabilities $4,088,000,000
Long-Term Debt $14,520,000,000
Total Assets $43,030,000,000
Intangible Assets $0
Total Liabilities $31,575,000,000
Shares Outstanding (Diluted Average) 510,596,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.40
Dec2017 $2.25
Dec2016 $2.21
Dec2015 $1.94
Dec2014 $2.03
Dec2013 $1.91
Dec2012 $1.85
Dec2011 $1.72
Dec2010 $1.62
Dec2009 $1.48
Dec2008 $1.46
Dec2007 $1.35
Dec2006 $1.36
Dec2005 $1.23
Dec2004 $0.87
Dec2003 $1.50
Dec2002 -$5.82
Dec2001 $2.30
Dec2000 $1.54
Dec1999 $1.70
Dec1998 $1.91

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.24
Dec2017 $2.13
Dec2016 $2.04
Dec2015 $1.93
Dec2014 $1.89
Dec2013 $1.79
Dec2012 $1.69
Dec2011 $1.59
Dec2010 $1.50
Dec2009 $1.42
Dec2008 $1.34
Dec2007 $1.27
Dec2006 $0.77
Dec2005 $0.32
Dec2004 -$0.06
Dec2003 -$0.27
Dec2002 -$0.66

Recommended Reading:

Other ModernGraham posts about the company

Xcel Energy Inc Valuation – May 2016 $XEL
Xcel Energy Inc. Analysis – September 2015 Update $XEL
The 10 Best Stocks For Value Investors This Week – 6/20/15
Xcel Energy Analysis – June 2015 Update $XEL
18 Companies in the Spotlight This Week – 3/21/15

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Disclaimer:

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.

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