One solid performer and reassessing a successful stock tip
This company operates in a solid sector, pays a decent dividend and offers potential upside. Analyst Rodney Hobson also gives an update on a housebuilder that returned over 40%.
4th December 2024 07:50
There has been a partial recovery in shares at electricity provider Evergy Inc (NASDAQ:EVRG). This is hardly overwhelming news, but it does suggest renewed interest among small investors in a comparatively small but solid company.
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Evergy is a regulated electric utility serving parts of just two states, Kansas and Missouri, but it is a steadily profitable enterprise. The company generates electricity through a wide range of sources. Some are fossil fuels such as coal, gas and oil, while others are renewables including wind and solar. Its customers range from homeowners to commercial firms to local government and it also supplies power to other electric utilities.
This wide range of sources and customers is one of its great strengths. The retail side of the business in particular is benefitting from increased demand and higher charges.
Revenue in the third quarter rose 8.5% year-on-year to $1.8 billion. While that was well short of analysts’ somewhat unreasonably high forecasts, earnings per share of $2.02 were better than expected. Net income rose 32% to $465.6 million as profit margins improved from 21% to 26%.
Forecasts for the medium-term are more realistic. Revenue is expected to rise 3.7% on average in each of the next three years as Evergy invests $16.2 billion in improving infrastructure in Kansas and Missouri.
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The shares are now back up to $63.25, where the price/earnings (PE) ratio is hardly challenging at 17.5. The dividend was increased by 4% in the latest quarter and the yield of 4% offers considerable solace if the price eases back.
Evergy is highly unlikely to shoot away any time soon, if ever, but it is a solid performer in a solid sector where there will always be demand.
Source: interactive investor. Past performance is not a guide to future performance.
Hobson’s choice: The shares slipped back after my earlier suggestion to buy at $65 and again at $68, but at least I was right to suggest in June that $52 would prove to be a floor.
However, I believe that the chart is heading back to the peak around $71 that was achieved in 2022. The best chance to buy has now been missed but the shares are still worth considering as a decent source of income. If you took my earlier advice to buy you should stay in.
Update: I returned housebuilder D.R. Horton Inc (NYSE:DHI) to the buy list in June after the shares slipped back to $140 from a peak of $165. That was slightly premature as the stock edged down further to $135 but, sure enough, Horton was soon on the rise again.
I suggested taking profits if the previous peak was attained again but that certainly was premature as the shares surged away to nearly $200. Well done anyone who delayed selling until the rise was truly over.
Source: interactive investor. Past performance is not a guide to future performance.
One positive factor for all housebuilders is that the Federal Reserve decided to start reducing its official interest rate uncharacteristically early, and initially by a full half percent as opposed to the usual quarter point. A quarter-point cut followed. However, the threat of renewed inflation now hangs over the United States and further reductions in interest rates look unlikely for the foreseeable future, although the Fed will be reluctant to turn about face one more time and start raising rates again. As such, the outlook for housebuilders is probably as good as it gets for now.
Horton is back down to around $167, having been as low as $162 earlier this month. At current levels the PE is below average at 11.7 but the dividend is a measly 0.8%. If you have stayed in you may as well hold for now but I cannot honestly recommend a purchase until the outlook becomes clearer.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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