The utility industry, encompassing businesses providing water, electricity, and natural gas, is recognized for its defensive attributes owing to the steady demand for these services regardless of economic fluctuations.
Given the current economic headwinds, finding promising investment opportunities can be daunting. In this article, I present renowned utility company Genie Energy Ltd. (GNE), whose stable dividends, low valuation multiples, and high-profit margins make it an ideal investment opportunity during periods of economic volatility and stock market unpredictability.
GNE has gained 32% over the past month and 68.1% over the past six months and seems to be trading at a discount under $20.
The electricity and natural gas supplier saw strong revenue growth in the fiscal fourth quarter of 2022 while pursuing a vertically-integrated solar development strategy, receiving notice to proceed with their first company-owned community solar project and completing a Coordinated Electric Standard Interconnection Review for a second project.
Moreover, GNE’s both segments demonstrated their ability to manage their businesses profitably through a wide range of market conditions.
While Genie Retail Energy (GRE) moderated customer acquisition efforts to maximize portfolio value, resulting in an increase of 11,000 Residential Customer Equivalents (RCEs) and 5,000 meters served, the other segment Genie Renewables (GREW), reported significant revenue growth in the previous quarter, primarily from building solar projects and providing consultative energy services.
One can easily identify GNE’s potential for high returns by considering the following factors:
Impressive Performance in the Stock Market
Shares of GNE have gained 48.7% year-to-date and 128.2% over the past year to close the last trading session at $15.54. The stock has a 24-month beta of 0.16.
Also, GNE is currently trading above its 50-day and 200-day moving averages of $13.01 and $10.74, respectively, indicating an uptrend.
Positive Recent Developments
On April 18, 2023, GNE announced that it had started construction of a four-megawatt community solar array in Perry, NY. The project is expected to generate over 5,000 MWh annually, sufficient to power over 440 homes, while offsetting over 3,500 metric tons of carbon emissions.
The Perry solar array is expected to be completed later this year and reflects the company's commitment to expanding its renewable energy portfolio and contributing towards a greener future.
Additionally, the completion of the Perry solar array could potentially attract more customers and investors, which could translate into higher revenues and profits for GNE in the long run.
Moreover, on March 21, GNE announced that it had acquired site rights to a community solar generation site in Upstate New York. Once built out and brought online, the proposed project is expected to have an aggregate generating capacity of approximately 6.25 megawatts (MW).
Robust Performance in the Last Reported Quarter
During the fiscal fourth quarter that ended December 31, 2022, GNE’s total revenue increased 17.6% year-over-year to $81.40 million. The company’s income from operations rose 167.2% year-over-year to $15.50 million, while its adjusted EBITDA increased 153.4% from the year-ago quarter to $18.50 million.
Also, net income attributable to GNE common stockholders came in at $16.20 million, and net earnings per share attributable to GNE common shareholders stood at $0.61.
Attractive Dividend
GNE paid stable quarterly dividends and redeemed $8.40 million of preferred stock during the fourth quarter. In the fiscal year 2022, the company repurchased 639,393 shares of GNE Common Stock and redeemed $11.40 million of preferred stock.
The company paid a quarterly dividend of $0.075 per share on March 1, 2023. GNE’s four-year average dividend yield is 2.88%, and its current annual dividend of $0.30 translates to a 1.89% yield on prevailing prices.
Looks Undervalued
In terms of trailing 12-month EV/Sales, GNE is currently trading at 0.94x, which is 76% lower than the industry average of 3.94x. Its trailing 12-month EV/EBITDA and EV/EBIT multiples of 3.71 and 3.73 are 72.4% and 83.7% lower than the industry averages of 13.47 and 22.88.
In addition, the stock’s trailing 12-month P/S and Price/Cash flow multiples of 1.25 and 4.96 are 44.2% and 49.8% lower than the industry averages of 2.24 and 9.87.
Impressive Profitability
GNE’s 49.05% trailing-12-month net income margin is 30.2% higher than the 37.69% industry average. Its 25.30% trailing-12-month EBIT margin is 40.7% higher than the 17.98% industry average. Its 1.24x trailing-12-month asset turnover ratio is 425.6% higher than the 0.24x industry average.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 39.26%, 34.63%, and 31.63% are higher than the industry averages of 8.97%, 3.80%, and 2.50%.
POWR Ratings Show Promise
GNE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GNE has an A grade for Value which is consistent with its lower-than-industry valuation.
It has consistently maintained its impressive price performance in recent months, which justifies its A grade in Momentum.
GNE is ranked #2 out of 64 stocks in the Utilities – Domestic industry.
To access GNE’s additional POWR Ratings for Growth, Stability, Sentiment, and Quality, click here.
Bottom Line
Despite the challenging economic environment, GNE has maintained strong momentum due to its underlying fundamental strength.
Moreover, the company sees attractive opportunities for retail customer acquisitions with substantial paybacks and expects to increase its Residential Customer Equivalents (RCE) and customer counts in the first quarter of 2023.
GNE’s CEO, Michael Stein, highlighted in the last quarter report that the company’s solar strategy is progressing well, with several projects nearing completion and construction slated to begin on others.
The company also has an extensive pipeline of projects in negotiations and due diligence. GNE remains optimistic about increasing both the number of projects and aggregate megawatts (MWs) this year.
Considering the all-year-long demand for the industry, GNE is strategically positioned to take advantage of growth opportunities in the energy sector. So, I think the stock might be an excellent investment candidate.
How Does Genie Energy Ltd. (GNE) Stack Up Against Its Peers?
In addition to GNE, which has an overall POWR Rating of B, investors could consider looking at its industry peer with an overall A rating (Strong Buy): Brookfield Infrastructure Corporation (BIPC).
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REVISED: 2023 Stock Market Outlook >
GNE shares were unchanged in premarket trading Thursday. Year-to-date, GNE has gained 51.19%, versus a 6.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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