Electric utility Progress Energy Inc. (PGN) announced robust first quarter 2010 results on May 5, 2010. Earnings were driven by favorable weather conditions and business from its repowered Bartow Plant, partially offset by increased expenses and taxes. Based on steady progress on its strategic plans, the company reiterated its ongoing earnings guidance for 2010 of $2.85 to $3.05 per share.
Looking Back on the Quarter
Power provider Progress Energy reported first quarter 2010 earnings that were ahead of the Zacks Consensus Estimate and the year-ago results. Progress' earnings per share in the quarter reached 75 cents, above both the Zacks Consensus Estimate and the year-ago earnings of 66 cents.
Segment-wise, ongoing earnings at Progress Energy Carolinas increased 10.6% to 52 cents per share, and earnings at Progress Energy Florida increased 21% to 40 cents per share.
Operating revenues in the quarter totaled $2,535 million, up 3.8% from $2,442 million reported in the year-ago quarter. Progress Energy Carolinas and Progress Energy Florida contributed $1,263 million (up 7.2%) and $1,270 million (up 0.6%), respectively, to the quarter's revenue.
Agreement of Analysts
Following the earnings release, estimate revision trends were positive, as there were no negative revisions over the last week. Only 1 analyst (out of 9) revised estimates positively for the upcoming quarter. For fiscal 2010 and 2011, 2 (out of 20) analysts and 1 (out of 19) analyst, respectively, moved their estimates upward.
Revision trends in the last 30 days also drifted toward the positive side with fewer negative revisions. For the next quarter, 2 analysts have raised their estimates while none lowered their estimates. Revisions for fiscal 2010 estimates also scored positive as 8 analysts moved estimates upward while only 1 analyst moved estimates downward. Estimate revisions for fiscal 2011 were even with 3 upgrades and 3 downgrades.
Positive revisions can be attributed to the company’s strong performance in the last quarter, together with increasing investor confidence in the company’s strategies.
Magnitude of Estimate Revisions
The agreement of estimate revisions points to an increasing trend for the Zacks Consensus Estimates, going forward. The magnitude of revisions from the last week resulted in estimates moving up by a penny for both fiscal 2010 and 2011. Estimates for the upcoming quarter remained static at 60 cents. The current Zacks Consensus Estimate for fiscal 2010 and 2011 are $3.01 and $3.14, respectively.
Over the last month, estimates have jumped up significantly based on the number of estimate revisions. Earnings estimate for the next quarter, fiscal 2010 and 2011 rose 4 cents each from last month.
Our Rating
We remain positive on Progress Energy’s ongoing strategic initiatives, aimed at providing a balanced solution to customers and moving to a low-carbon future. The company has substantial initiatives underway in each of these three fronts: aggressive energy-efficiency programs, innovative alternative- and renewable-energy projects, and a state-of-the art power system.
Investments include smart grid infrastructure, advanced power plant emission controls, plug-in hybrid vehicle technology, and natural gas generation in the Carolinas and Florida. The company has also launched more than a dozen new energy-efficiency and renewable-energy programs, giving customers greater control over their energy use and their bill.
Moreover, we continue to like Progress Energy for its increased generation capacity, market expansion, cost-cutting initiatives, debt reduction, high dividend yield and improving balance sheet.
Going forward, the company anticipates growing its dividend, with a long-term payout ratio of 70% to 75%. Additionally, the company targets growing EPS 4%-5% annually in the long term, assuming an improving economy and greater infrastructure investment.
However, we remain skeptical about the company’s near term prospects due to the weak economic environment. Though we have seen encouraging signs of improvement of late, the economic recovery is still slow. Further, we believe the positives of the initiatives stated above are already embedded in the share price, leaving no room for further upside.
Accordingly, we keep our conservative view on PGN shares and maintain a Zacks #3 Rank and Neutral recommendation on the stock.
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