Yum, a power company that's trading below book value.
I came across a company this afternoon in a sector that I love that is currently trading for less than its tangible book value. Check out these stats:
Price/Book: 0.7 vs. an industry average of 1.4
Dividend Yield: 4.1% (recently increased by 25%)
Dividend Payout Ratio: 44% vs an industry average of 56%
What is the name of this company that pays a solid dividend and trades for less than its book value you ask? NV Energy (NVE), formerly known as Sierra Pacific Resources.
NV Energy is a power company that provides electricity and natural gas to consumers primarily in Nevada and California. Yes, Vegas is hurting right now and electricity demand there has fallen some, but there's a limit to how far it can fall.
As I mentioned, NVE is trading for less than its tangible book value. This means that the total current market value of its power plants and other assets is worth more than its current share price. Now that's cheap. In fact, NVE is the least expensive company on a price to book and price to tangible book value ratio in the utility sector according to Credit Suisse.
In its March report on the utility sector, Credit Suisse did not view NVE's discount to book value as favorably as I do. Credit Suisse's sector analyst did not like fact that the company's EV / Base Rate ratio is not as low as its price to book value. While this is true, either the analyst overlooked the fact (or the March report is older than this news) that NVE recently requested a rate hike from regulators. Raising rates during a recession might not be easy, but NVE has traditionally had a very good relationship with according to T. Rowe Price's utility analyst.
One possible explanation for the weakness in NV Energy's stock over the past year, other than the general market weakness, is the liquidation of a large position owned by a hedge fund. NVE's largest outside shareholder Horizon Asset Management was forced to lower its stake in the company from 30% to 5% to raise cash for investor redemptions.
Like most companies in the capital intensive utilities sector, NV Energy has a decent chunk of debt, but its current liquidity position will allow it to stay out of the capital markets in 2009 if necessary. It has no significant debt maturities in 2009 or 2010 and its main bank credit facility is not scheduled to mature until November 2010. So the company is in decent shape financially.
I added NVE to my CAPS portfolio today.