Tuesday, December 27, 2011

Green as Prairie Grass

The service area of Xcel Energy (XEL:  NYSE) stretches across the upper plains states of Minnesota, South and North Dakota, running into Colorado and stretching south to New Mexico and Texas.  Power interests in Wisconsin and Michigan extend the electric utility’s footprint across the northern most section of the country.  Xcel delivers electricity or natural gas to over 5.1 million customers across the eight states.

Xcel managed to double the amount of its power generated from renewable resources in the three years beginning 2008 and ending 2010.  Over 10% of Xcel’s power production was from renewable sources in 2010.  The company has not yet provided an official breakdown for the year 2011.  However, the year likely represents another advance in Xcel’s renewable energy production from a mix of wind, solar, biomass and hydroelectric power sources.

It seems Xcel is assuming the profile of the new, distributed power producer.  Power sources are mixed and vary by local conditions.  Consumers are engaged to a much greater extent than ever in power conservation through rate plans and energy savings programs. 

If consumers find all that power-plan making a bore, they can click on Xcel’s Bird Cams, which offer live monitoring of bald eagle nests not to mention osprey, falcons and owls.  The feature on the company website is a sure draw for customer loyalty and respect.  There are a few pictures left from the 2011 nesting season  -  fuzzy, frumpy little owls and eaglets that only a mother could love.

The baby birds might be helping Xcel garner a strong price earnings multiple of 16.0 times trailing earnings and 15.0 times the consensus estimate.  Of course, it could also be a 7.9% profit margin and 10.3% return on equity that has investors prepared to pay a bit of a premium over the rest of the industry for Xcel shares.  Another plus is lower leverage than most of Xcel’s peers.

Xcel may be as green as the prairie grass, but it is a pricey stock that is only made palatable by a generous dividend.  The current dividend yield is 4.0%.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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