NV Energy Inc. (NYSE:NVE) reports preliminary financial results for the quarter ending 2012-09-30.
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|
|Revenue Growth %||38.6||21.1||0.3||(40.1)||50.8|
|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|
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.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
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.
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.