Utility Sector Analysis
Jun Liu
Ran Yan
Hongda Zhang
05/08/2012
Utility Sector Facts
Companies
Employees
875
563,200
Market Cap
Revenue
18Tn
584Tn 4.19%
Annualized 1 Year
Performance
S&P 500 weight
7.8%
3.5%
Overview
Business
Analysis
EPS Growth
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Utility Sector in S&P 500
Consumer Staples
10.85%
Consumer
Discretionary
11.22%
S&P 500
Energy
11.22%
Telecommunicatio
n Services
2.91%
Financials
14.68%
Health Care
11.39%
Materials
3.45%
Information
Technology
20.29%
Industrials
10.51%
Utilities
3.50%
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
SIM Portfolio Vs. S&P 500
SIM Portfolio
Consumer
Discretionary
10.04%
Dividend
Receivables
0.08%
Consumer Staples
10.95%
S&P500: 3.50% Utility
SIM Portfolio: 3.47% Utility
3 bps lower
Energy
10.42%
Financials
13.36%
Cash
3.83%
Health Care
13.61%
Information
Technology
21.91%
Adjusted 3.61%
11 bps higher
Materials
3.93%
Telecommunicatio
n Services
1.02%
Industrials
7.37%
Overview
Business
Analysis
Economic
Analysis
Utilities
3.47%
Financial
Analysis
Valuation
Recommendat
ion
Industries in Utility Sector
•
•
•
•
•
Electric Utilities
Gas Utilities
Independent Power Producer
Multi-Utilities
Water Utilities
Overview
Business
Analysis
IPP is an entity, which is not
a public utility, but which
owns facilities to generate
electric power for sale to
utilities and end users
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Industries in Utility Sector
Gas Utility
5%
Independe
nt Power
Producer
9%
Market Cap.
( Billion)
Industry
Electric Utility
469.9
Gas Utility
46.7
Independent Power Producer
89.3
Multi-Utilities
319
Water Utilities
28.2
Overview
Business
Analysis
Electric
Utility
49%
MultiUtilities
34%
Water
Utilities
3%
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Large Companies in the Sector
Company Name
Ticker
Mkt Cap(B)
1
SOUTHERN CO
SO US Equity
39.84
2
EXELON CORP
EXC US Equity
33.35
3
DOMINION RES/VA
D US Equity
29.75
4
DUKE ENERGY CORP
DUK US Equity
28.68
5
NEXTERA ENERGY
NEE US Equity
26.58
6
FIRSTENERGY CORP
FE US Equity
19.76
7
AMERICAN ELECTRI
AEP US Equity
18.75
8
PG&E CORP
PCG US Equity
18.52
9
CONS EDISON INC
ED US Equity
17.38
10
PUB SERV ENTERP
PEG US Equity
15.93
20
CALPINE CORP
CPN US Equity
9.10
40
NRG ENERGY
NRG US Equity
3.84
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Utility Sector Performance
3 Months
Index Name
(PRICE
RETURNS)
S&P 500
Utilities
Performance
1 Day
MTD
QTD
YTD
-1.61% -2.06% -2.80% 8.87%
0.15% -0.51%
1.26% -1.46%
YTD
5 Years
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Business Analysis
• Sector Life Cycle
• Mature Phase
The Sector’s infrastructure and
products are well established
Output tends to follow trends in
overall economic growth
High competition among firms
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
External Factors
• Weather Factor
 Temperature change affects power generation and demand
 Infrastructure damage concerns
• Regulation
• Commodities Price Risk
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Supply Factors
• Regulation
 Environmental concern: CO2 emission regulation
 Guided and regulated by PUC (Public Utility Commission)
 NARUC assures a fair and reasonable rate
• Price Change in Commodities
 Nature gas and fossil fuel volatility
 Water supply differs geography
• Competition from new energy
 Solar and wind power
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Demand Factors
• Households Demand
 Households use more energy when income rises
• Commercial Sector
 Power business operation
 Business activities increase the demand
• Industry User
 Improving conditions for industry lifted
demand during the recovery
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Geography- Business Location
Coal and Natural Gas Power
Electricity
Southeast and southwest and Great lake region.
Population Spread ; Utility sensitive industries ; Easy access to resources
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Five Forces Analysis
Threat of New Entrants
Low
Power of Suppliers
Medium
Power of Buyers
Medium
Threat of Substitutes
Low
Competition
High
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
CPI
CPI:LODGING
CPI:ENERGY
CPI:GAS AND ELECTRICITY
CPI:FOOD
0.64
0.87
0.77
0.71
0.54
CPI:MEDICAL CARE COMMODITIES
0.53
CONSUMER SPENDING
0.71
CONSUMER SPDG: CLOTHING & SHOES
0.81
CONSUMER SPDG: ELECTRONIC EQUIPMENT
0.82
CONSUMER SPDG: FOOD
0.62
CONSUMER SPDG: DURABLES
0.85
Overview
Business
Analysis
Economic
Analysis
CAPITAL SPENDING
S&P500 PRICE INDEX
U.S. OIL & GAS RIG COUNT
NOMINAL GDP
EMPLOYMENT
UNEMPLOYMENT RATE
AVERAGE HOURLY EARNINGS
Financial
Analysis
Valuation
0.90
0.86
0.81
0.73
0.76
-0.12
0.54
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Economic Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Financial Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Financial Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Financial Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Valuation Analysis
Utility Sector
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative to SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
19.4
17.6
2.5
1.6
8.6
High
1.1
1.2
1.0
1.2
0.8
Low
8.4
10.2
1.1
0.4
4.4
Low
0.45
0.52
0.4
0.3
0.4
Median
13.8
14.3
1.6
1.1
6.6
Median
0.91
0.95
0.7
0.9
0.7
Current
13.8
14.0
1.6
1.3
6.7
Current
1.0
1.0
0.7
1.0
0.7
The sector is in line on the absolute basis and on relative basis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Valuation Analysis
•
•
•
Absolute Basis
Utility Sector
Independent power producer
Electric utilities
Gas utilities
Multi-utilities
Water utilities
Forward P/E
Median
Current
14.3
14.0
13.7
11.7
14.1
14.3
16.7
19.6
14.4
15.2
23.8
19.8
Relative to S&P 500
Utility Sector
Independent power producer
Electric utilities
Gas utilities
Multi-utilities
Water utilities
Forward P/E
Median
Current
0.95
1.0
0.91
0.86
0.96
1.1
1.1
1.5
0.96
1.1
1.6
1.5
P/B
Median Current
1.6
1.6
1.3
0.9
1.7
1.6
2.2
2.4
1.6
1.6
2.7
2.3
P/CF
Median
Current
6.6
6.7
5.1
4.0
6.5
6.7
7.3
11.4
6.5
7.2
13.0
11.6
P/B
Median Current
0.7
0.7
0.6
0.4
0.7
0.7
1.0
1.1
0.7
0.8
1.1
1.1
P/CF
Median
Current
0.7
0.7
0.6
0.4
0.7
0.8
0.7
1.3
0.7
1.3
0.8
1.3
Valuation vary across the sector from industry to industry
Independent power producer: cheap
Gas utility & water utilities: expensive
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Recommendations
Hold current weight
Reasoning:
 Expected steady growth as economy recovers
 Higher electricity price
 Mature sector with no substantial growth
Risks:
 Heavy regulation
 Commodity price volatility
 Substitute of new energy
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion
Q&A
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Recommendat
ion