Tuesday, September 10, 2013

DTE Energy: Consistent and Generous

NuStart Energy is a consortium of energy companies interested in promoting nuclear technology for energy generation.  The group had its sights on getting a nuclear power plant construction and operating license from the Nuclear Regulatory Commission (NRC).  Michigan-based DTE Energy Company (DTE:  NYSE) is one of the founding members.

DTE has generating capacity just over 11,000 megawatts, of which about 10% is sourced from its Fermi 2 nuclear power plant.  The company has filed a license application with the NRC to expand the station with the installation of another boiling water reactor made by General Electric-Hitachi.  The application was filed five years ago and, once approved, the plant could require over ten years for construction and commissioning.  Nothing happens quickly with nuclear power technology!

DTE Energy is habitually profitable.  In the most recently reported twelve months, the company generated a net profit of $647 million on $9.3 billion in total sales.  During this same time period cash flow from operations was $2.3 billion, representing a cash conversion ratio of 25%.  The company has been paying out about two thirds of earnings as dividends, which is expected to amount to a dividend of $2.62 per share in the current fiscal year.  At the current price level the dividend yield is 4.0%.

The consensus growth rate among analysts following DTE Energy is near 5.0%.  Coupled with the forward dividend yield of 4.0%, the growth rate suggests a fair value price/earnings ratio near 9.0, a multiple well below the current forward price/earnings multiple of 15.8 times.

Although DTE fails the PEG Ratio check, a market approach to valuation using comparable multiples provides a bit of encouragement for shareholders.  A consistent operating track record and that generous dividend help drive valuation.   The stock is trading nearer to its five-year high price/earnings multiple than the low end of its price/earnings ratio range.  However, DTE is trading well below the average for its peer group of regulated utilities. 

 
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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