Stocks / Equity Markets

The Top Utility Stocks

A review of total shareholder returns shows how growth and merger strategies drove performance last year.

To better understand the performance of the electric utility sector from both a short-term and long-term perspective, we examined the total shareholder return (TSR)—dividends plus change in stock price—of 58 electric companies for 2005 and for three- and five-year periods. We grouped these companies into four categories to better understand the impact of alternative strategies on investor performance: Recovering, Traditionalist, Growth, and Merger.

Byline: 

Dean C. Maschoff, Thomas F. Read, and Jason K. D’Souza

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Re-engaging Investors

How the World Bank Group removes generation risks in emerging markets.

Infrastructure investors have had their share of pain over the past few years, particularly in developing countries. Aside from worries about the safety and stability of the investment itself, investors also face a more expensive cost of capital. Political risk insurance cannot remove the uncertainties associated with infrastructure investments, but the combination of sound deal structure and clear and reasonable expectations by all parties can mitigate some of these risks.

Byline: 

Philippe Valahu

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The Man Who Would Be King

Exelon Chairman, President, and CEO John W. Rowe, on the proposed merger that would create the largest utility in the United States.

Exelon CEO John W. Rowe would head the largest utility in the industry, if a proposed merger with PSEG goes through. By creating a $40 billion market-capitalization utility, the newly formed company would be 60 percent larger than its nearest market-cap peer, and would have total assets of approximately $79 billion, with almost $25 billion in annual revenues and $3.2 billion in annual net income.
Byline: 

Richard Stavros

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Merchant-Energy Bottom Fishers

Private equity rolls the dice.

One way some new players in the power generation market are looking at the valuation is to separate out “extrinsic” value and apply a higher discount rate or “haircut.” An alternative approach is to price the “whole curve” on a risk-adjusted basis.
Byline: 

Gary L. Hunt and Grant Thain

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Model Risk Management: How to Avoid an Earnings Surprise

The industry is going down the mark-to-market route, creating significant opportunities for earnings swings and distortions.

Domestic and international groups have pushed the industry toward mark-to-market accounting, creating significant opportunities for earnings swings and distortions and making good model risk management more essential now than ever before.
Byline: 

John Bampfylde and David Shimko

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Changing Capital Structures for Changing Times

The utilities industry is in need of more equity.

Value Line projects that total capital for electric utilities will increase about 12 percent during the next several years, while common equity will increase nearly 28 percent. Similarly, natural gas distribution company total capital is projected to increase about 10 percent, and common equity close to 15 percent. For both industries, the median common equity ratio in the near-term future for companies with investment-grade rated subsidiaries is in the range of 51 to 52 percent. For utilities, higher equity ratios are desirable for several reasons.
Byline: 

Robert G. Rosenberg

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