Which Energy Company Could Spark Your Returns?

By Chad Henage - January 23, 2012 | Tickers: ED, TEG | 0 Comments

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With earnings season upon us this is a great chance to compare companies you don't own to a company you do. I saw that Consolidated Edison (NYSE: ED) reported their quarterly results and decided to give this company a second look. This gives me an opportunity to decide if the company I own is the better value, or if greener pastures lie elsewhere. Here is what I found:

Consolidated Edison
Current Price: $58.60
P/E based on '12 earnings: 15.75
Growth expected 3.61%
PEG 4.36
Yield 4.1%

In another blog post I called Duke Energy grossly overvalued at a PEG of 3.89. I'm not sure what adjective to use to describe Consolidated Edison. The only reason an investor could be buying ConEd right now is dividend yield. The sad part is, if some investors looked a little harder they could have found a better yield and better expected growth.

Who is that other utility? Let me introduce Integrys Energy Group (NYSE: TEG). Integrys is a regulated utility just like ConEd. The difference is ConEd has a market cap of about $17 billion versus Integrys' $4 billion. Why is Integrys likely a better value? Let's look at the numbers:

Integrys Energy Group
Current Price: $51.26
P/E based on '12 earnings: 14.36
Growth Expected: 9.40%
PEG: 1.53
Yield: 5.31%

Integrys has a lower forward P/E ratio, more than twice the expected growth, and a better yield. I'm convinced the only reason that Integrys doesn't get more attention is its size. It's very easy for financial advisors and brokers to stick to the larger cap utilities like ConEd, Duke, or Southern Co. The problem is when all of that money chases yield in a few names the stocks get inflated.

So start your research with a smaller cap utility like Integrys. You get a better yield and a better growth rate. That sounds like just the type of company to add some spark to your returns.

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