I do not own this stock of Innergex Renewable Energy (TSX-INE, OTC-INGXF). In 2006 I bought Innergex Power on a buy rating and favorable report from TD although it has only been going from 2003. In 2008 I sold Innergex as I did not think that it is a stock I want to hold as dividend increased less than the rate of inflation.
When I was updating my spreadsheet, I noticed that this renewal energy company cannot seem to make money. The EPS is only up over the past 5 years, because 5 years ago, the EPS loss was greater at $0.63 than the loss for 2019 which is $0.25.
I do not like their debt ratios. None are good. They are using convertible debentures for some debt, but these will dilute shareholders value when converted to shares. For example, the Long Term Debt/Market Cap is 1.82. This means just the long term debt is much higher than the market cap for the company. This ratio should be under 1.00 and lots of analysts like to see it at 0.50 or lower. Personally, I like companies that can make a profit and have good debt ratios.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% range) at 3.10%. The 5 year historical dividend yield is good (2% and 4% ranges) at 4.95%. The 10 and historical dividend yields are good (5% and 6% ranges) at 5.51% and 6.01%. This stock used to be an income trust, and income trusts always rather high dividend yields. When these companies had to change to corporations, they needed to reduce their dividends. The dividend increases are low (under 8% per year) with the dividend increase for the past 5 years at 3.16% per year. The last dividend increase was for 2.9% and it was made in this year.
The Dividend Payout Ratios (DPR) need improving. The DPR for EPS for 2019 cannot be calculated because of the earnings loss in 2019. The 5 year coverage is 3638% and, of course, far too high. The DPR for CFPS for 2019 is 49% with 5 year coverage at 33%. I like both the current and 5 year coverage to be 40% or less. The DPR for Free Cash Flow for 2019 is negative and cannot be calculated. The 5 year coverage is also negative an cannot be calculated.
Debt Ratios are awful. The Long Term Debt/Market Cap is 1.82 and far too high. The Liquidity Ratio for 2019 is 0.48. If you add in cash flow after dividends it is 0.70. This means that current assets cannot cover current liabilities. If you add back in the current portion of the long term debt the ratio is 1.34 and with cash flow is 1.68. You have to be careful in added back in the current portion of the long term debt as there could come a time when the company cannot roll over debt.
The Debt Ratio is 1.11 and this is quite low. I prefer one at 1.50 or high. The Leverage and Debt/Equity Ratios at 10.36 and 9.36 are extremely high and bad. I like them to be less than 3.00 and 2.00, respectively.
The Total Return per year is shown below for years of 5 to 16 to the end of 2019. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 3.16% | 13.17% | 8.22% | 2.88% |
| 2009 | 10 | 0.15% | 15.31% | 9.16% | 2.15% |
| 2004 | 15 | 0.57% | 9.99% | 4.36% | 2.53% |
| 2003 | 16 | 0.67% | 10.46% | 4.54% | 2.21% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 36.32, 46.20 and 56.07. The corresponding 10 year ratios are negative. The corresponding historical ratios are 9.78, 10.73 and 11.69. The current P/E Ratio is negative because analysts expect an earning loss of $0.24 in 2020.
The analysts expect a profit in 2021 with EPS of $0.34. With a stock price at $23.24, the P/E Ratio would be 68.35. Analysts also expect a profit in 2022 of $0.40. With a stock price of $23.24, the P/E Ratio would be 58.10. These ratios are even higher than the 5 year ones. None of this is helpful in telling how reasonable the stock price is currently.
I get a Graham Price of $5.42. The 10 year low, median, and high median Price/Graham Price Ratios are 2.13, 2.35 and 2.56. The current P/GP Ratio is 4.29 based on a stock price of $23.24. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 3.14. The current P/B Ratio is 3.74 based on a Book Value of $916M, Book Value per Share of $6.22 and a stock price of $23.24. The current ratio is 19% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 14.12. The current P/CF Ratio is 17.21 based on Cash Flow per Share estimate for 2020 of $1.35, Cash Flow of $198.8M and a stock price of $23.24. The current ratio is 22% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 6.01%. The current dividend yield is 3.10% based on dividends of $0.72 and a stock price of $23.24. The current dividend yield is 48% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 5.51%. The current dividend yield is 3.10% based on dividends of $0.72 and a stock price of $23.24. The current dividend yield is 44% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 5 year median dividend yield of 4.91%. The current dividend yield is 3.10% based on dividends of $0.72 and a stock price of $23.24. The current dividend yield is 37% below the 5 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 4.63. The current P/S Ratio is 5.42 based on Revenue estimate for 2020 of $632M, Revenue per Share of $4.29 and a stock price of $24.23. The current ratio is 3% above the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price is reasonable to expensive. No matter how you do the dividend test, the results is that the stock price is relatively expensive. The problem is that this used to be an income trust and income trust had higher dividend yields than other stocks. But this stock cannot even gain traction with a 5 year test. The stock price is rising a lot more than the dividend. Although a dividend yield of 3.10% is not bad for a utility company. The P/S Ratio test shows the stock price as reasonable, but on the high side of reasonable. The company is not producing EPS or a good Cash Flow.
Is it a good company at a reasonable price? This stock seems to becoming a dividend growth stock, but it is having problems with generating earnings and cash flow. Analysts and the market expect great things probably because it is into green energy, but personally, I like companies that can produce earnings and cash flow.
When I look at analysts’ recommendations, I find Buy (4) and Hold (5). The consensus would be a Buy. The 12 month stock price is $25.86. This implies a total return of 14.37% with 11.27% from capital gains and 3.10% from dividends.
One analyst says on Stock Chase that the run up this year is due to Hydro Quebec buying 10% of its stock. David Jagielski on Motley Fool offers this stock as part of a 3 stock portfolio for dividends. On the executive overview on Simply Wall Street the stock is given 2 stars out of 5 and a risk analysis. A writer on Simply Wall Street says there is positive sentiment around this stock. A writer on Simply Wall Street is uncomfortable with the company’s debt. See recent analysts ratings on Modern Readers.
Innergex Renewable Energy Inc is an independent Canadian renewable power producer. It develops, acquires, owns, and operates hydroelectric, wind, and solar facilities in Canada, the United States, France, and Chile. Its web site is here Innergex Renewable Energy.
The last stock I wrote about was about was PFB Corp (TSX-PFB, OTC-PFBOF) ... learn more. The next stock I will write about will be Crescent Point Energy Corp (TSX-CPG, NYSE-CPG) ... learn more on Friday, November 20, 2020 around 5 pm. Tomorrow on my other blog I will write about Canadian Portfolio.... learn more on November 19, 2020 around 5 pm.
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.
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