NV Energy Inc. (NVE) has been bucking the weak macro backdrop and moving higher since the end of April, capitalizing on the resilience of its regulated business. This Zacks #2 Rank (Buy) got a further boost with the announcement of a 31% dividend hike and strong first quarter profit. Moreover, this defensive utility stock currently enjoys a healthy dividend yield of 3.9% and is expected to deliver earnings growth of 61.7% in the current fiscal year.
Fiscal 2012 First-Quarter
On May 8, NV Energy reported fiscal first-quarter 2012 earnings of 5 cents per share, beating both the Zacks Consensus Estimate of 3 cents and the year-ago earnings of a penny. Despite a lower top-line, the robust quarterly performance was driven by higher gross margins, a lower fuel cost and increased customer count. Operating income rose 30.6% year over year to $96.5 million.
Net sales, however, went down 4.6% year over year to $611.4 million. The top-line also missed the Zacks Consensus Estimate of $611 million by 7.6%.
On the other hand, NV Energy affirmed fiscal 2012 earnings per share in the range $1.15 to $1.25, which represents year-over-year growth of 55.4% to 68.9%.
Estimates for NV Energy have inched upward in the last 60 days. The Zacks Consensus Estimate for fiscal 2012 increased 3.5% to $1.20, indicating a year-over-year growth of 61.7%. The bullishness about earnings growth going forward is based upon expected volume growth, falling interest overhead, and the inclusion of the Harry Allen combined cycle natural gas plant in rate base.
Boosted by the planned merger of its two regulated subsidiaries in 2013 (Nevada Power Company and Sierra Pacific Power Company),the estimate for fiscal 2013 has increased 4.2% over the same timeframe to $1.25 per share, representing a projected year-over-year growth of nearly 4.5%.
Dividend Portraying Strength
NV Energy last raised its quarterly dividend in May 2012 by 31% to 17 cents per share. Stable cash flow and fewer capital expansion plans would free up substantial funds for dividends going forward. This leaves room for further upside. Management also expects to dish out approximately 55% - 65% of future earnings as dividends. The company has been paying regular incremental dividends since 2007, currently yielding a strong 3.9%. This is more than twice the current yield on the 10-year Treasury Notes.
Valuation of NV Energy looks reasonable. The current forward P/E of 14.4x implies a premium of 6.1% to the peer group average of 13.6x. On a price-to-book basis, the shares are currently trading at 2.7x, versus the peer group average of only 4.9x. Given the company's compelling fundamentals, the valuation looks reasonable. Moreover, its long-term estimated EPS growth rate of 14.0% presents a window of opportunity for investors seeking income and growth.
The stock has been consistently trading above its 50-day moving average since April 16, 2012. Average volume is decent at 708.3K. NV Energy has also outperformed the S&P 500 since May 9, 2012. Over the past three months, the stock gained roughly 10.8% compared with the S&P 500's loss of 3.1%.
NV Energy's fortunes are tied to the overall health of a slowly recovering Nevada economy in general and the Las Vegas housing and gaming markets in particular. The company is moving ahead with its strong cash flow, incremental dividend and lower capital expenditure needs in the near-term. The planned merger of its two regulated subsidiaries should continue to shore up shareholder return.
Incorporated in 1983 and headquartered in Las Vegas, Nevada, NV Energy is an investor-owned holding company. The vertically integrated electric utility has a market cap of $4.15 billion, and serves about $2.5 million Nevadans throughout about 90% of the state. Its main regulated subsidiary, Nevada Power Company, serves approximately 830,000 electric customers in Las Vegas and its adjoining area. While another regulated subsidiary, Sierra Pacific Power Company, caters to approximately 376,000 electric customers and around 151,000 gas customers in other parts of the state.