Description of business from the company’s website: “Central Vermont Public Service [is] an independent, investor-owned company providing energy and energy-related services to customers throughout Vermont. CVPS, the largest of the state’s 21 utilities, serves 155,000 customers across the state. The Home Service Store, an affiliate, operates a national home maintenance and repair service. Subsidiary SmartEnergy is a water-heater rental business. . . . Central Vermont Public Service customers who want to support renewable energy and Vermont dairy farms have a new energy choice – CVPS Cow Power. The Vermont Public Service Board has approved CVPS Cow Power, which is intended to help promote development and reliance on renewable energy in Vermont by creating a market for energy generated by burning methane from cow manure.”
Is the size of firm over 1 billion market capitalization? No: 240M.
Price to earnings analysis: is the current P/E ratio below 20? Yes – 15.16.
Has the stock’s performance equaled or exceeded the performance of the S&P? No.
Volatility: Is the stock’s beta less than or equal to 1.00? Yes – .81.
Price to assets analysis: is the P/B ratio below 2.5? Yes – 1.4.
Price to cash flow analysis: is the current P/CF ratio below 20? Yes – 8.21.
Does the stock’s dividend yield exceed the yield of the S&P 500? Yes – 3.90 vs. 2.02.
Dividend growth – does the five year dividend growth rate exceed the S&P’s dividend growth rate? Yes – 5.50 vs. 5.30.
Dividend payout analysis: Is the payout ratio less than 50%? No: 76.56%.
Current ratio analysis: Is the current ratio greater than 2.0? No: 1.17.
Debt to equity ratio analysis: Is the total debt to equity ratio less than 1.0? Yes – .72.
Interest coverage analysis: Does the interest coverage ratio exceed 3.0? No: 1.60.
Intrinsic valuation – is the stock selling below its forward intrinsic value? No.
Earnings stability – has there been positive net income for each of the prior ten years? Yes, but net income was very poor in 1998, 2001, and 2005.
Earnings growth – is net income for the company greater than five years ago, preferably at least 1/3 greater? Yes, but net income has been so variable that this could be a fluke.
Is the business simple and understandable? Yes.
Does the business have favorable long term prospects? No. The population in CV’s service area is stable at best, and there is a trend to reduced electricity consumption through conservation efforts.
Are company insiders buying more stock than they are selling? No.
Does technical analysis reveal a convincing uptrend? Yes.
SUMMARY: A few electric utilities have started showing up on my daily scans for cheap stocks, including Central Vermont Public Service. There are some positives here. CV has the lowest electricity rates of any major utility in New England, and they are relatively unaffected by energy price fluctuations, because they have long-term power purchase contracts with the Vermont Yankee nuclear plant and the Canadian provincial utility Hydro-Quebec. The company has recently been granted a 4% rate increase. One unique feature of CV is that they sponsor the generation of electricity on several local farms from methane produced by cow manure. But the overall investment picture is not very good. This company has underperformed the S&P 500 badly over the years. CV is small, and it is likely to stay small. The current ratio shows better financial strength than many electric utilities, but the interest coverage ratio is a disconcertingly low 1.60, so they have little margin for error, and the dividend payout ratio is already way too high. This doesn’t seem like a good place to invest money for the long haul. The expected rate of return appears to be less than holding T-Bills, but with much more risk.