Tuesday, December 1, 2015

LNT: Electrifying results Horrible entry price



At the beginning of 2015, approximately 60% of my portfolio was in oil/gas/basic materials; BBL, COP, CVX, and KMI. In 2H of 2015, I have been buying more and more healthcare, consumer staples, and utilities. Today I will give a novice analysis on a company I found called Alliant Energy Corporation (LNT). The big question is should I buy LNT and is it fair or undervalued?  


Step 1: Description
Alliant Energy Corporation operates as a utility holding company that provides regulated electricity and natural gas services to residential, commercial, industrial, and wholesale customers in the Midwest region of the United States.


As of this post LNT is trading at $60.19, has a dividend yield of 3.67%, and P/E of 16.69x.


Step 2: Dividends history


LNT is not your typical utility. In 2003, LNT sold off its non-regulated properties, cut its dividend, and raised capital to pay off $800 million to $1 billion dollars worth of debt. Ever since 2005, the company has been slowly increasing its dividends to where it is now above 2003. Even during the recession, LNT was able to increase its dividends while not taking on too much debt. LNT today is a lot different from LNT of 2003. LNT has grown its dividends in the past nine (9) years.



3) Dividend Growth Rate
I like looking at DGR from 2006 onwards. It reflects on how well the company handled the recession. Pre-recession LNT was growing at a clip of 9% a year. During the recession LNT slowed down its dividend growth but has made a nice comeback in recent years.



4) EPS payout ratio.


I started from 2010 because this was the most historical eps data i could find. LNT dividends are covered by its EPS. The average payout ratio is 60% with the highest payout in 2012 at 62.28% and its lowest in 2013 at 58.20%. I used the 2015 expected eps from ZACKS.


5) Annual Dividends/FCF per share payout ratio
This is calculating the annual dividend divided by the free cash flow per share according to Morningstar. 2015 is missing since there is no data. The highest FCF payout was in 2013 at 56.46%. The lowest FCF payout was 2010 at 17.73%. LNT dividends are covered by its fcf per share. It should be noted that in 2008 LNT FCF per share was -5.07 which meant that LNT increased its dividends even when it knew that its free cash flow could not cover its dividends.


6) Valuation


The big question is whether LNT is a bargain, overpriced, or fair valued.


  1. From a pure PE perspective over the last 5 years, LNT is overvalued. LNT dipped to its lows in August 2011 at 12.4x and reached its high at in January 2015 at 20.02x. Ignoring the recession, LNT normally trades at 15x which gives it a fair value of $54.15 meaning the stock is $6 overvalued.


  1. From a pure Dividend Yield perspective, LNT normally trades at 4% dividend yield which gives it a fair value of $55 meaning the stock is $5 overvalued.


  1. Yahoo finance gives LNT one year target of $64.17 meaning the stock is undervalued by $4.


  1. Multiple firms give LNT the one year price range of $63 to $67 meaning the stock is undervalued by $3-7 dollars.


  1. S&P Capital gives LNT two stars out of five and a fair value of $54.00.


  1. Thomson Reuters give LNT a Neutral (8) and a one year target price of $61 (low estimate) $64 (high estimate) which means LNT is currently trading at a $1-$4 discount.


  1. During the September interest hike scare LNT fell as low as $54.00 which in my opinion is the correct price.


Conclusion:


LNT is a small company with a bumpy history of dividend cuts and increases. LNT fundamentals are solid and it has enough room to continue growing its dividends. It might be worth a look if the price fell down to $54 or lower.


What do you readers think? Is LNT right for your portfolio.

*My next analysis will be Flower Foods (FLO) the people who makes bread...and other stuff. Is there anything you want me to change about my analysis? Go ahead and post below. The more critiques I get the better I get at choosing stocks.

*you know the drill. I'm not a financial analysis, lawyer, or anybody you should trust with your finances. I'm just some guy on the interweb.

2 comments:

  1. Thanks for the update and I'm really looking forward to your FLO analysis. The company looks great, I've had it on my watch list but I'm not sure about the valuation and the yield is a tad low for me but improving here lately.

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    Replies
    1. hi CD, FLO is a great company but I need to work out its evaluation. Hopefully it'll be done by next week

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