Valuing Electric Utility Stocks with the Graham Number

Screen for undervalued utilities with the Graham Number and a web-connected spreadsheet with live financial updates.

Utility companies are a core component of long-term investment planning. They’re stable, pay consistent dividends and sell a product that people will always want.

The Graham Number is a simple method of screening for undervalued stocks. Introduced by Benjamin Graham in his seminal book “The Intelligent Investor”, it’s equal to the square root of (22.5 x EPS x Book value per share). A stock is undervalued if the current market price is lower than its Graham Number

This web-connected spreadsheet has a list of electric utilities traded on the NYSE (and a few others). It downloads the market capitalization, last trade price, PE ratio, book value and EPS.

A spreadsheet with a list of electric utility companies, financial data, and the Graham Number

Some VBA then calculate the Graham Number for each utility. Undervalued utilities are highlighted in green, while those that are overvalued are highlighted in red. If you update the spreadsheet, you get the latest Graham Number.

Here’s a summary of the results, correct as of 21st February 2015.

NameStock ExchangeMarket CapEPS EstimatePE RatioBook ValueLast TradeGraham Number
Empire District ENYSE1.107B1.416.631825.4823.81
SPARK INFR FORUSASX3.182B0.1520.851.252.172.05
Cleco CorporationNYSE3.300B2.7120.6827.1454.6640.68
Hawaiian ElectricNYSE3.416B1.720.3417.4733.3125.85
Pacific Gas & EleNYSE26.192B3.517.9933.0954.9851.05
Alliant Energy CoNYSE7.168B3.4618.4130.9764.6149.1
Calpine CorporatiNYSE8.295B0.939.438.8522.0513.6
Wisconsin EnergyNYSE11.710B2.7219.8719.6051.9334.63
NRG Yield, Inc. CNYSE1.851B1.5365.1138.653.5336.45
Edison InternatioNYSE20.881B4.3114.1832.9564.0956.53
OGE Energy CorporNYSE6.787B1.9717.2116.2734.0526.85
Abengoa Yield plcNasdaqNM2.778B0.0522.9134.735.08
Great Plains EnerNYSE4.212B1.5717.4923.4227.3828.76
Spark Energy, IncNasdaqNM45.6M12.193.415.28.75
Black Hills CorpoNYSE2.220B2.8817.2330.449.7144.38
Huaneng Power IntNYSE17.286B5.299.3029.8848.2959.64
Vector Limited OrNZSE2.897B0.1617.222.302.912.88
Southern CompanyNYSE41.941B2.8420.9322.0746.1437.55
PEPCO Holdings, INYSE6.862B1.2225.7917.3227.2421.8
CMS Energy CorporNYSE9.801B1.8820.3813.3435.5823.75
NextEra Energy, INYSE46.675B5.6318.8345.06105.675.55
TECO Energy, Inc.NYSE4.648B1.1134.3811.0719.9916.63
CAPITAL POWER CORToronto2.112B0.8730.8428.5825.4323.65
Ameren CorporatioNYSE10.426B2.3618.1527.9242.9738.51
The AES CorporatiNYSE8.478B1.2724.136.1411.8913.25
TrustPower LimiteNZSE2.538B0.4119.984.938.116.75
ITC Holdings CorpNYSE6.175B1.8722.8310.474020.99
Xcel Energy Inc.NYSE18.164B2.0917.8720.0935.9230.74
Consolidated EdisNYSE18.672B3.9115.2843.3963.7561.78
FORTIS INCToronto10.908B2.0227.7522.9939.7132.32
DTE Energy CompanNYSE14.745B4.6216.3547.0583.269.93
Entergy CorporatiNYSE14.214B5.4115.2855.8579.3282.45
PP&L CorporationNYSE23.291B2.2913.4120.4734.9832.47
El Paso ElectricNYSE1.529B2.2717.3525.1737.8935.86
SCANA CorporationNYSE8.311B3.7915.3734.8058.354.47
Pinnacle West CapNYSE7.264B3.8617.5540.6765.7759.43
Dominion ResourceNYSE43.395B3.7232.9419.773.9940.61
Companhia ParanaeNYSE3.013B1.557.5717.3111.0124.57
Portland GeneralNYSE2.891B2.2817.1124.4336.9535.4
American ElectricNYSE28.714B3.5217.4834.458.7252.19
Ormat TechnologieNYSE1.451B1.4326.3316.9531.8623.35
Empresa NacionalNYSE12.303B2.8222.7715.94531.76
FirstEnergy CorpoNYSE15.085B2.6720.3130.1935.8542.59

Of course, the Graham Number shouldn’t be used in isolation. Benjamin Graham dictated that a company should meet several criteria before being valued by the Graham Number. These include uninterrupted earnings for the last ten years, a current ratio of over 2, consistent dividends for the last twenty years, and several others.

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