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Wed. Sep. 3, 2008

Stock Analysis: Integrys Energy Group (TEG) *

Linked here is a PDF copy of my detailed analysis of Integrys Energy Group (TEG). Below are some highlights from the above linked analysis:

Company Description: Integrys Energy Group, Inc., through its subsidiaries, operates as a regulated electric and natural gas utility company in the United States and Canada. It purchases, generates, and distributes electric power; and purchases and distributes natural gas.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number

TEG is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuations and average the remaining two, TEG is trading at a slight premium. TEG did not earn or lose any Stars in this section.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.

TEG earned two Stars in this section for 3.) and 4.) above. TEG has paid a cash dividend to shareholders every year since 1940 and has increased its dividend payments for 50 consecutive years. It’s one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating. Last year’s dividend payout was 101%, up from 65% in 2006. Since the increase was in excess of 15 points, a Star is deducted, leaving a net of one Star in this section.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

  1. NPV MMA Diff.
  2. Years to >MMA

TEG earned both of the available Stars in this section. The NPV MMA Diff. of the $3,464 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as TEG has. TEG’s current yield of 5.13% exceeds the 4.61% estimated 20-year average MMA rate. .

Other: TEG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. TEG was formed in February 2007 when WPS Resources acquired PGL and changed its name to Integrys Energy Group. TEG has a good balance within its operations, including lower risk gas and electric utility businesses as well as higher risk unregulated wholesale and retail energy marketing services.

Conclusion: TEG did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of three Stars. This quantitatively ranks TEG as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $53.90 before TEG’s NPV MMA Diff. decreases to the $3,000 NPV MMA Diff. that I like to see. At that price TEG would yield 4.97%. TEG is mediocre at best. I see Consolidated Edison, Inc. (ED) as a stronger utility stock if you are looking to add exposure to utilities.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I had no position in TEG (0.0% of my Income Portfolio) .

What are your thoughts on TEG?


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