Stocks Utilities

DTE Energy Co Valuation – January 2019 $DTE

Company Profile (excerpt from Reuters): DTE Energy Company (DTE Energy), incorporated on January 26, 1995, is an energy company. The Company’s segments include Electric, Gas, Gas Storage and Pipelines, Power and Industrial Projects, Energy Trading, and Corporate and Other. DTE Energy’s utility operations consist of DTE Electric Company (DTE Electric) and DTE Gas Company (DTE Gas). DTE Energy also has three other segments that are engaged in a range of energy-related businesses. DTE Energy’s other businesses are involved in natural gas pipelines, gathering and storage; power and industrial projects, and energy marketing and trading operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DTE – January 2019

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 $20,686,691,583 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.47 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 53.41% Pass
6. Moderate PEmg Ratio PEmg < 20 20.60 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.94 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 1.47 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 13.81 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 $5.52
MG Growth Estimate 4.63%
MG Value $98.04
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $80.06
MG Value based on 0% Growth $46.93
Market Implied Growth Rate 6.05%
Current Price $113.72
% of Intrinsic Value 115.99%

DTE Energy Co 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, high PEmg 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 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 $4.22 in 2014 to an estimated $5.52 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.05% 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 DTE Energy Co revealed the company was trading above its Graham Number of $84.39. The company pays a dividend of $3.36 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.6, which was below the industry average of 21.62, 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 $-118.13.

DTE Energy Co 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) -$118.13
Graham Number $84.39
PEmg 20.60
Current Ratio 1.47
PB Ratio 1.94
Current Dividend $3.36
Dividend Yield 2.95%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $3,103,000,000
Total Current Liabilities $2,117,000,000
Long-Term Debt $13,620,000,000
Total Assets $35,292,000,000
Intangible Assets $3,157,000,000
Total Liabilities $24,602,000,000
Shares Outstanding (Diluted Average) 182,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.97
Dec2017 $6.32
Dec2016 $4.83
Dec2015 $4.05
Dec2014 $5.10
Dec2013 $3.76
Dec2012 $3.55
Dec2011 $4.18
Dec2010 $3.74
Dec2009 $3.24
Dec2008 $3.34
Dec2007 $5.70
Dec2006 $2.43
Dec2005 $3.05
Dec2004 $2.49
Dec2003 $2.50
Dec2002 $3.18
Dec2001 $1.44
Dec2000 $3.27
Dec1999 $3.33
Dec1998 $3.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.52
Dec2017 $5.14
Dec2016 $4.45
Dec2015 $4.21
Dec2014 $4.22
Dec2013 $3.75
Dec2012 $3.70
Dec2011 $3.86
Dec2010 $3.70
Dec2009 $3.64
Dec2008 $3.69
Dec2007 $3.66
Dec2006 $2.67
Dec2005 $2.70
Dec2004 $2.54
Dec2003 $2.63
Dec2002 $2.74

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2018
DTE Energy Co Valuation – March 2018 $DTE
DTE Energy Co Valuation – July 2016 $DTE
58 Companies in the Spotlight This Week – 1/31/15
5 Speculative and Overvalued Companies to Avoid – January 2015

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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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