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SCANA Corp Valuation – March 2018 $SCG

Company Profile (obtained from Marketwatch): SCANA Corp. is a holding company, which is engaged in the generation, transmission, distribution and sale of electricity and natural gas. The company through its subsidiaries predominantly engages in the generation and sale of electricity to wholesale and retail customers in South Carolina and in the purchase, sale and transportation of natural gas to wholesale and retail customers. The company also conducts other energy-related business and provides fiber optic communications in South Carolina. It operates its business through four business segment: Electric Operations, Gas Distribution, Retail Gas Marketing, and All Other. The Electric Operations segment primarily generates, transmits and distributes electricity, and is regulated by the Public Service Commission of South Carolina and United States Federal Energy Regulatory Commission. The Gas Distribution segment is comprised of the local distribution operations of South Carolina Electric & Gas Co. and Public Service Co. of North Carolina, Inc., which are primarily engaged in the purchase, transportation and sale of natural gas to retail customers in portions of North Carolina and South Carolina. The Retail Gas Marketing segment is comprised of SCANA Energy, which operates in Georgia’s natural gas market. The All Other segment is comprised of other direct and indirect wholly-owned subsidiaries of the company, one of these subsidiaries operates a FERC-regulated interstate pipeline company and the other subsidiaries conduct non-regulated operations in energy-related and telecommunications industries. SCANA was founded on December 31, 1984 and is headquartered in Cayce, SC.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SCG – March 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 $5,655,611,231 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.88 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -33.64% Fail
6. Moderate PEmg Ratio PEmg < 20 16.55 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.08 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 0.88 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -22.54 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.40
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $34.74
MG Value based on 0% Growth $20.37
Market Implied Growth Rate 4.02%
Current Price $39.65
% of Intrinsic Value N/A

SCANA Corporation 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 stability or growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. 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 seeing its EPSmg (normalized earnings) decline from $3.39 in 2014 to an estimated $2.4 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.02% 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 SCANA Corporation revealed the company was trading below its Graham Number of $45.61. The company pays a dividend of $2.45 per share, for a yield of 6.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.55, 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 $-81.35.

SCANA Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$81.35
Graham Number $45.61
PEmg 16.55
Current Ratio 0.88
PB Ratio 1.08
Current Dividend $2.45
Dividend Yield 6.18%
Number of Consecutive Years of Dividend Growth 18

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $1,851,000,000
Total Current Liabilities $2,113,000,000
Long-Term Debt $5,906,000,000
Total Assets $18,739,000,000
Intangible Assets $210,000,000
Total Liabilities $13,484,000,000
Shares Outstanding (Diluted Average) 143,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.51
Dec2017 -$0.83
Dec2016 $4.16
Dec2015 $5.22
Dec2014 $3.79
Dec2013 $3.39
Dec2012 $3.15
Dec2011 $2.97
Dec2010 $2.98
Dec2009 $2.85
Dec2008 $2.95
Dec2007 $2.74
Dec2006 $2.68
Dec2005 $2.81
Dec2004 $2.30
Dec2003 $2.54
Dec2002 -$1.34
Dec2001 $5.15
Dec2000 $2.40
Dec1999 $1.73
Dec1998 $2.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.40
Dec2017 $2.61
Dec2016 $4.20
Dec2015 $4.05
Dec2014 $3.39
Dec2013 $3.15
Dec2012 $3.01
Dec2011 $2.93
Dec2010 $2.89
Dec2009 $2.83
Dec2008 $2.78
Dec2007 $2.67
Dec2006 $2.35
Dec2005 $2.22
Dec2004 $2.02
Dec2003 $1.95
Dec2002 $1.78

Recommended Reading:

Other ModernGraham posts about the company

23 Companies in the Spotlight This Week – 3/9/15
Scana Corporation Annual Valuation – 2015 $SCG
16 Companies in the Spotlight This Week – 3/1/14
SCANA Corporation (SCG) Annual Valuation

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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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