Value Screen: South Jersey Industries (SJI)

Description of Business from Company’s Website:
“South Jersey Industries is an energy services holding company. Subsidiaries include South Jersey Gas, South Jersey Energy Service Plus, South Jersey Energy, Marina Energy, and South Jersey Resources Group.”

Additional information from Yahoo Finance: “South Jersey Industries, Inc., through its wholly owned subsidiaries, engages in the purchase, transmission, and sale of natural gas for residential, commercial, and industrial use. It also sells natural gas and pipeline transportation capacity to various customers on the interstate pipeline system, and transports natural gas purchased directly from producers or suppliers. The company also acquires and markets natural gas and electricity to retail end users and provides energy management services to commercial and industrial customers. It also markets an air quality monitoring system through an environmental consulting firm. The company markets wholesale natural gas storage, commodity, and transportation in the mid-Atlantic and southern states. The company develops and operates energy related projects, which provide cooling, heating, and hot water services. In addition, the company installs residential and small commercial HVAC systems, as well as provides plumbing services in southern New Jersey. As of December 31, 2005, the company served approximately 322,424 residential, commercial, and industrial customers in southern New Jersey. South Jersey Industries was founded in 1910 and is headquartered in Folsom, New Jersey.”

Has the stock’s performance equaled or exceeded the performance of the S&P? Yes.

Is the size of firm over 1 billion market capitalization? Borderline: 950M.

Price to earnings analysis: is the current P/E ratio below 20? Borderline: 19.55.

Volatility: Is the stock’s beta less than or equal to 1.00? Yes – .86.

Price to assets analysis: is the P/B ratio below 2.5? Yes – 2.19.

Price to cash flow analysis: is the current P/CF ratio below 20? Yes – 13.

Does the stock’s dividend yield exceed the yield of the S&P 500? Yes – 3.02% vs. 2.05%.

Dividend growth – does the five year dividend growth rate exceed the S&P’s dividend growth rate? No: 3.33% vs. 7.32%. However, SJI has increased the dividend each of the last eight years, they have just instituted a policy of raising it annually by a base growth level of 6-7%, and the dividend was just increased 9% on December 1.

Dividend payout analysis: Is the payout ratio less than 50%? No: 54.7%.

Current ratio analysis: Is the current ratio greater than 2.0? No: .85.

Debt to equity ratio analysis: Is the total debt ratio less than 1.0? No: 1.24.

Intrinsic valuation – is the stock selling below its forward intrinsic value? Yes, 32.43 vs. approximate intrinsic value of $35.50.

Earnings stability – has there been positive net income for each of the prior ten years? Yes.

Earnings growth – is net income for the company greater than five years ago, preferably at least 1/3 greater? Yes. The average long-term annual growth rate is approaching 10%.

Is the business simple and understandable? Yes.

Does the business have favorable long term prospects? Yes.

Are company insiders buying more stock than they are selling? No. There were a few small purchases in November 06, however, this was preceded by heavy sales in March 06.

Does technical analysis reveal a convincing uptrend? Yes.

SUMMARY: A few natural gas utilities have started showing up on my daily scans. Southern Jersey Industries is a bit more diversified than the others, and also has a higher dividend yield. Some of SJI’s business interests other than gas distribution are electricity marketing, air quality monitoring, plumbing and heating, and energy management services. In a recently announced new venture, they will be installing solar electric systems. This company appears to be reasonably priced from a value perspective. There are a few things I don’t like: the dividend payout ratio is too high, and the company has taken on more debt than I would like. But this is normal for utilities, and I cash flow will probably be more than sufficient to meet all obligations. I would consider buying this stock at a lower price during a market correction.


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