PPL Corporation (PPL) is a holding company for electric utilities in Kentucky, Pennsylvania, and the United Kingdom. Though it’s various subsidiaries, PPL is involved in power generation, transmission, and distribution. PPL provides electric service to around 1.4 million customers. In 2011 PPL completed its acquisition of Central Networks, the second largest electric distribution company in the U.K.
PPL Basic Company Stats
- Ticker Symbol: PPL
- PE Ratio: 12.53
- Yield: 4.6%
- % above 52 week low: 99.8%
- Beta: 0.15
- Market cap: $18.98 B
- Website: www.pplweb.com
PPL vs the S&P500 over 10 years
Over a 10 year period PPL is generally moving on par with the S&P500. Both investments grew by about 75-80%. There was a huge spike in PPL’s value in 2007 and 2008, right before the Great Recession hit. I would not expect to see this again.
PPL Earnings Per Share (EPS) & Dividend Growth
- 1 year EPS growth: 0.8%
- 3 year EPS growth: 9.3%
- 5 year EPS growth: 1.8%
- 10 year EPS growth: 2.6%
EPS growth for PPL is basically flat, with a dip in 2009 during the Great Recession. Given the highly regulated nature of utilities, this doesn’t really surprise me.
- 1 year dividend growth: 2.9%
- 3 year dividend growth: 1.4%
- 5 year dividend growth: 1.8%
- 10 year dividend growth: 7.2%
Much like EPS, dividend growth for PPL is basically flat.
With a starting yield of 4.6% and a growth rate of about 2%, PPL’s yield on cost will grow to about 5.5% in 10 years. In order to double the dividend, using the rule of 72, it will take approximately 36 years.
PPL Payout Ratio
PPL’s payout ratio has remained relatively flat in the 50% range. There was a spike in 2009, but now things appear to be back to normal.
PPL Revenue Growth
- 1 year revenue growth: -3.5%
- 3 year revenue growth: 20.1%
- 5 year revenue growth: 11.2%
- 10 year revenue growth: 9.2%
PPL has shown relatively slow revenue growth over time. Except for the last two years, where the revenue has jumped up likely due to the acquisition of Central Networks. Given that utilities are highly regulated and can’t easily raise prices or expand their services, this is the kind pattern I would generally expect.
PPL, like other electric utilities is subject to market fluctuations in the price of electricity which are often related to the price of commodities used to generate them. For example if coal, oil, natural gas prices spike, then electricity generated by those fuels costs more. Utilities are highly regulated, which means that PPL only has a limited ability to raise prices in response to increased electricity costs. Also, it’s important to note that PPL can only expand by purchasing another company’s customers or facilities. It cannot compete directly with other utilities for business.
There is one exception to this, and that is the unregulated electric supply market. In this market, customers can purchase electricity directly from whomever they want. The power is still transmitted and delivered by their normal utility company, it’s just supplied by a different company.
PPL Valuation Panel
The Graham number represents one very simple way to value a stock. The Graham number for PPL is $32.46. The current stock price is about the same, suggesting that PPL may be fair valued at the moment.
Gordon Growth Dividend Discount Model
Using a risk free rate of 2%, an expected return of 10% and the beta of 0.15, the CAPM model provides a discount rate of 11.2%. Using a dividend growth rate of 2% this model returns a value of $31.49, suggesting that PPL may be fair valued.
Based on the two different models used, it appears that PPL is fair valued.
PPL Cash Secured Puts
I wouldn’t consider buying PPL at this time, nor would I consider selling puts against it.
Overall, I feel that while PPL is fair valued at the moment, it’s dividend growth is incredibly slow. I do own some PPL and would like to increase my utilities holdings, but I do not feel that purchasing more PPL at this time would be the best way to accomplish that. If PPL’s price drops towards its 52 week low, I may reconsider.
Disclosure: I am long PPL.
Readers: What are your opinions about PPL?