NV Energy Inc.: Earnings Snapshot For September Quarter

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NV Energy Inc.: Earnings Snapshot For September Quarter

NV Energy Inc. (NYSE:NVE) reports preliminary financial results for the quarter ending 2012-09-30.

NV Energy, Inc. (NYSE:NVE) recently reported its preliminary financial results, based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

NV Energy Inc.’s analysis versus peers uses the following peer-set: PG&E Corporation (NYSE:PCG), Edison International (NYSE:EIX), Xcel Energy Inc (NYSE:XEL), Pinnacle West Capital Corporation (NYSE:PNW), IDACORP Inc (NYSE:IDA), Southwestern Energy Company (NYSE:SWN), PNM Resources, Inc. (NYSE:PNM), UNS Energy Corp (NYSE:UNS), Avista Corp (NYSE:AVA) and CH Energy Group Inc (NYSE:CHG). The table below shows the preliminary results, along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 1,026.5 740.7 611.4 609.6 1,017.8
Revenue Growth % 38.6 21.1 0.3 (40.1) 50.8
Net Income 223.2 69.4 12.2 (25.2) 173.5
Net Income Growth % 221.4 470.4 N/A (114.6) 1,245.9
Net Margin % 21.7 9.4 2.0 (4.1) 17.0
ROE % (Annualized) 25.5 8.2 1.4 (2.9) 20.5
ROA % (Annualized) 7.5 2.4 0.4 (0.9) 5.9

Valuation Drivers

NV Energy Inc.’s current Price/Book of 1.2 is about median in its peer group. The market expects NVE-US to grow at about the same rate as its chosen peers (PE of 16.2 compared to peer median of 16.2) and to maintain the peer median return (ROE of 7.9%) it currently generates.

The company’s relatively high profit margins (currently 9.4% vs. peer median of 6.2%) are burdened by asset inefficiency with asset turns of 0.3x compared to the peer median of 0.3x. Overall, this suggests a margin driven operating model relative to its peers. NVE-US’s net margin is its highest relative to the last five years and compares to a low of 5.1% in 2009.

Economic Moat

Changes in the company’s annual top line and earnings (-10.3% and -28.0% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

NVE-US’s return on assets currently is around peer median (2.4% vs. peer median 2.4%) — similar to its returns over the past five years (1.8% vs. peer median 2.2%). This performance suggests that the company has no specific competitive advantages relative to its peers.

The company’s gross margin of 57.6% is around peer median suggesting that NVE-US’s operations do not benefit from any differentiating pricing advantage. However, NVE-US’s pre-tax margin is more than the peer median (14.6% compared to 9.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While NVE-US’s revenues growth has been below the peer median in the last few years (-5.9% vs. -1.7% respectively for the past three years), the market still gives the stock an about peer median PE ratio of 16.2. The market seems to see the company as a long-term strategic bet.

NVE-US’s annualized rate of change in capital of 0.6% over the past three years is less than its peer median of 1.8%. This below median investment level has also generated a less than peer median return on capital of 2.2% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Earnings Quality

NVE-US has reported relatively strong net income margin for the last twelve months (9.4% vs. peer median of 6.2%). This margin performance combined with relatively high accruals (18.6% vs. peer median of 13.5%) suggests possible conservative accounting and an understatement of its reported net income.

NVE-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Company Profile

NV Energy, Inc. is a holding company which operates through four subsidiaries: Nevada Power Co., Sierra Pacific Power Co., NVE Insurance Co. and Lands of Sierra. Nevada Power and Sierra Pacific Power are together called as Utilities and operate in three business segments: NPC electric, SPPC electric and SPPC natural gas. The company generates, transmits and distributes electric energy to Las Vegas and to northern Nevada through its subsidiaries. It also delivers natural gas service in the Reno-Sparks area of Nevada. The company was founded on December 12, 1983 and is headquartered in Las Vegas, NV.


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