Friday, May 22, 2015

Fortis Inc. 2

Sound bite for Twitter and StockTwits is: Stock price is relatively reasonable. It is a core portfolio stock of mine, but I still do not like the Liquidity Ratio on this stock. Low Liquidity Ratio stocks can get into trouble when there is a recession. However, this is a utility stock and does get a steady cash flow. See my spreadsheet at fts.htm.

I own this stock of Fortis Inc. (TSX-FTS, OTC-FRTSF). It was on Mike's site showing Dividend Paying Canadian Growth stocks. I bought this stock as Newfoundland Light and Power Co. Ltd. Class A shares in 1987. I bought more in 1995 and 1998. In 2005 I sold some Fortis from my RRSP account as I needed to get $20,000 in this account and I was concerned about the debt liquidity of this stock. However, this stock continues to be one of my big stock holdings.

Last year the outstanding shares were increased by 1.38M shares for stock options. This is 0.50% of the outstanding shares and I think is a little high for a utility stock. Over the past year in insider trading, there was no insider buying but insider selling was at $9.4M. This is 0.09% of the outstanding shares. This seems a bit high also.

There is some insider ownership with the CEO owning shares worth around $6.7M and the CFO owning shares worth around $4.1M. The shares owned by the Chairman are worth around $0.5M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 17.20, 18.72 and 20.76. The corresponding 10 year values are similar at 16.32, 18.48 and 20.62. The current P/E Ratio is 18.97 based on a stock price of $38.88 and 2015 EPS estimate of $2.05. This stock price test suggests that the stock price is relatively reasonable.

I get a Graham Price of $34.98. The 10 year low, median and high median Price/Graham Price Ratios are 1.04, 1.18 and 1.30. The current P/GP Ratio is 1.11 based on a stock price of $38.88. This stock price test suggests that the stock price is relatively reasonable.

I get a 10 year median Price/Book Value per Share Ratio of 1.59. The current P/B Ratio is 1.47 based on a BVPS of $26.33 and a current stock price of $38.88. The current P/B Ratio is 7.6% lower than the 10 year median P/B Ratio. This stock price test suggests that the stock price is relatively reasonable.

The current dividend yield is 3.5%. This is some 6% higher than the 5 year average of 3.3%. The historical average dividend yield at 4.96% is 29% higher than the current dividend yield of 3.5% and that is quite a bit higher. However, a lot of people think we are better off using median values. The historical median is 3.67% and this is just almost 5% higher than the current dividend yield. This stock price test suggests that the stock price is relatively reasonable.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. Most recommendations are a Buy and the consensus is a Buy. The 12 months stock price is $42.00. This implies a total return of 11.52% with 8.02% from capital gains and 3.50% from dividends. This is a good total return from a utility stock.

This CBC article talks about Fortis selling off some of their real estate holdings. This article by Joseph Solitro of the Motley Fool suggests that this stock is currently at a good long term buying opportunity. In this article, Nelson Smith of the Motley Fool suggests that Fortis is overpriced with a P/E multiple of near 20 times earnings. By the way, if you have trouble getting the whole Motley Fool article, you can often go you and back into the article and it all will show. This article in Hydro World talks about Fortis buying more shares in Fortis Energy (Bermuda) Ltd.

This is the second of two parts. The first part was posted on Thursday, May 21, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

Fortis is a diversified, international distribution utility holding company. Its regulated holdings include electric distribution utilities in five Canadian provinces and three Caribbean countries and a natural gas utility in British Columbia. Fortis owns and operates non-regulated generation assets across Canada and in Belize and Upper New York State. It also owns hotels and commercial office and retail space primarily in Atlantic Canada. Its web site is here Fortis.

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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