A First Look at Progress Energy (PGN). Specultively Priced For Sure.

Bonds outstanding: $4.8 billion, but who knows how the merger with Duke Energy (DUK) will affect Progress’ outstanding debts?

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What the company does – Progress Energy is a holding company providing electricity generation, transmission, and distribution through its regulated electric utility operating companies in North Carolina, South Carolina, and Florida. Its operating companies are Carolina Power & Light, which serves 1.5 million customers, and Florida Power, which serves 1.6 million customers.

Morningstar’s take – Progress Energy, which became one of the largest regulated utilities in the United States when Carolina Power & Light and Florida Progress merged in 2000, could become part of the largest U.S. utility if its $37 billion merger with Duke Energy DUK closes. Like Duke, Progress management has reconfigured its strategy and now has one goal: Take advantage of growth opportunities at its regulated utilities during the next decade. Merger or no merger, we think this strategy should produce more consistent returns and turn Progress into a classic income stock.

DIVIDEND RECORD – Progress Energy has been paying dividends since at least the year 2000.  The dividend was around 0.52 per share back then.  It missed on dividend payment in 2006 according to Google Finance.  It looks like the company just cut its $0.62 quarterly dividend down to $0.26, but that is not what is going on.  Progress Energy and Duke Energy are merging and the Progress management is trying to synchronize the dividend payment with that of Duke.  So this is a partial dividend payment (see http://www.alaskadispatch.com/article/progress-energy-board-directors-declares-partial-dividend)

Dividend: $0.62 quarterly

Dividend yield: 4.57% ($2.48 annual dividend / $54.16 share price)

Dividend payout ratio: 93.5% ($2.48/$2.65 recent Google Finance EPS) or 100% ($2.48/$2.47 avg adjusted EPS)

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EARNING POWER – $2.47 six year average adjusted earnings per share @ 295.01 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.28

$571 M

250 M

$1.94

2007

$1.96

$504 M

256 M

$1.71

2008

$3.17

$830 M

262 M

$2.81

2009

$2.71

$757 M

279 M

$2.57

2010

$2.95

$856 M

291 M

$2.90

2011 (est)

$2.86

$845.7 M

295.01 M

$2.86

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.62

$184 M

295 M

$0.62

2011 Q2

$0.60

$176 M

296 M

$0.60

2011 Q3

$0.98

$291 M

296 M

$0.98

2011 Q4 (est)

$0.66

$194.7 M

295.01 M

$0.66

2011 total (est)

$2.86

$845.7 M

295.01 M

$2.86

Six year average adjusted earnings per share is $2.47

Consider contrarian buying below $19.76 (8 times average adjusted EPS)

Consider value buying below $29.64 (12 times average adjusted EPS)

Consider speculative selling above $49.40 (20 times average adjusted EPS)

Progress Energy is currently trading at 21.9 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – Yawn!

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Book value per share: $34.59

Price to book value ratio: 1.57 (under 1.0 is good)

Current ratio: 0.97 (over 2.0 is good)

Quick ratio: 0.37 (over 1.0 is good)

Debt to equity ratio: 1.17 (lower is better)

Percentage of real assets: 65% of total assets in plant, property, and equipment

CONCLUSION – Progress Energy (PGN) pays a modest dividend yield at 4.57%.  It would become a 6% yielding high dividend stock with its current dividend at a price of $41.33.  Progress’ dividend payout ratio is quite high compared to the company’s average adjusted earnings of $2.47 per share.  The company’s operating cashflow is not enough to cover dividend payments and capital expenditures.  The company will constantly need to issue more stock or debt to make up the difference.  However, the company is speculatively priced at 21.9 times average adjusted earnings.  I would wait for the price to drop below $30 before investing in Progress Energy.  A $30 share price is much closer to 12 times average earnings and it $34.59 book value.  I don’t like the company’s lack of equity growth.  Nor do I like its meager current and quick ratios.  Progress doesn’t have much cash for upcoming liabilities this year.  The bottom line is that you should wait for the Duke Energy merger and for the return of the worldwide recession to take this stock back down to where it was in 2009.  This one has had a big stock price run since then and its headed for a fall because the earnings don’t justify higher stock prices.

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DISCLOSURE – I don’t own Progress Energy (PGN).

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Published in: on February 6, 2012 at 1:32 pm  Leave a Comment  

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