Thursday, April 9, 2015

AltaGas Ltd. 2

Sound bite for Twitter and StockTwits is: price high, but not excessive. If the stock price is expensive, it does not seem to be excessively so. It would be better if the company could better grow its revenue and it has done this for the past couple of years and this is expected to continue in 2015. 2014 was not a good year for earnings but analysts also see improvements in this area in 2015. See my spreadsheet at ala.htm.

I own this stock of AltaGas Ltd (TSX-ALA, OTC-ATGFF). When I bought this stock in 2009 it was on many dividend growth stock lists. In 2009, I saw that this stock also had good growth in Revenues, Earnings, Dividends, and Stock Prices over the last 5 and 10 years. The stock had a fairly strong balance sheet. I took a small position in this stock, and planned to wait and see how things go with this stock before buying more. I bought more in 2010 and 2012.

This utility also has a lot of stock options outstanding. In 2014, the outstanding shares were increased by around 989,000shares for stock options. This amounts is around 0.74% of the outstanding shares. They have a book value of $24.9M and at the end of 2014 would be worth around $42.9M. This is not an anomaly because from 2011 to 2013 the outstanding shares were increased by 0.45%, 0.74% and 0.66% for stock options.

In the past year for insider trading there was $5.3M of insider selling with net insider selling at $4.8M and insider buying at $0.5M. Net insider selling is low as it is some 0.08% of this stock's market cap.

The 5 year low, median and high median Price/Earnings per Share Ratios were 22.15, 27.64 and 32.29. These are quite a bit higher than the corresponding 10 year P/E Ratios of 18.70, 16.15 and 18.70. I think that the 5 year P/E Ratios are rather high for a utility stock.

The current P/E Ratio is 26.04 based on a stock price of $42.45 and 2015 EPS estimate of $1.63. This P/E Ratio is not high against the P/E Ratios of the past 5 years, but it is high against the P/E Ratios of the past 10 years. I would think that it is rather high P/E Ratio for a utility stock.

I get a Graham Price of $27.45. The 10 year Price/Graham Price Ratios are 1.19, 1.38 and 1.57. I think that these ratios are a little high. The current P/GP is 1.51 based on a stock price of $42.45. This stock price test suggests that the stock price is relatively expensive. The reason for the lower Graham Price has to do with the fact that EPS are not growing but the stock price is. The thing is that a stock is considered cheap if the P/GP Ratio is below 1.00.

I get a 10 year Price/Book Value per Share Ratio of 2.07. The current P/B Ratio is 2.07 based on a stock price of $42.45 and BVPS of $20.55. The Book Value and BVPS has been growing nicely for this stock. This stock price test suggests that the stock price is relatively reasonable.

The 5 year median dividend yield is 4.47%, a value some 6.8% higher than the current dividend yield of 4.17%. This stock price test suggests that the stock price is relatively reasonable. However, the historical average and historical median dividend yields are 6.27% and 4.67% and these yields are 34% and 25% higher than the current dividend yield of 4.17%.

Note that the historical high dividend yield is 10.11%. It is that high because this stock used to be an income trust company. It was thought that old income trust companies would end up with dividend yields of 4 to 5%. This stock is within that range. So maybe all this is pointing to a relatively reasonable stock price.

When I look at analysts' recommendations, I find Buy and Hold recommendations. Most of the recommendations are a Buy and a Buy would be the consensus recommendation. The 12 month stock price consensus is $49.40. This implies a total return of 20.54% with 4.17% from dividends and 16.37% from capital gains. This is a very good return for a utility stock.

This recent Legacy article talks about recent re-ratings of this stock by analysts. This article by Alaska Highway News talks about LNG projects in B. C. This company provides Investor Presentations on their website.

This is the second of two parts. The first part was posted on Wednesday, April 08, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

AltaGas operates physical assets and provides essential services to customers who produce and consume natural gas and power. Their gas business provides gathering, processing, transportation, storage and marketing of natural gas and natural gas liquids. Their power business generates and delivers power in Alberta and British Columbia and is developing a significant portfolio of renewable power projects. Its web site is here AltaGas.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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