Riding With the Wind
Growth Report Free
growthreport.com
Volume 5, Issue 14
February 2, 2005
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Utilities such as FP&L Group are growth oriented success stories with the wind at their backs.
I’m a sucker for alternative energy -- not just because it’s good for the environment and weans us off dependency on foreign oil. I’m bullish on it because it remains a relatively untapped market with guaranteed demand, an industry where technology and innovation can literally solve a problem by doing good, offering the potential for huge profits that need not flow outside our borders.
FPL Group (NYSE: FPL), one of the nation's largest providers of electricity-related services --with annual revenues of more than $9 billion – offers a case in point. Though FPL Group's principal subsidiary is Florida Power & Light Company, one of the nation's largest electric utilities serving more than 4.2 million customers in Florida, the company also operates FPL Energy LLC, a leading wholesale generator utilizing clean fuels such as natural gas, wind, solar, hydroelectric and nuclear to generate electricity. In fact, FPL Energy is the nation's leader in wind energy, with 43 wind facilities in operation in 15 states – allowing it to own, operate and control nearly 40 percent of wind generated energy within the US.
Though wind power alone has yet to create a truly gigantic stand-alone businesses – despite General Electric (NYSE: GE) announcing that its wind turbine business has recently surpassed $1 billion in revenue – it appears to still be serving FP&L well. The parent company reported a 30 percent rise in fourth-quarter earnings with its primary subsidiary, Florida Power & Light, witnessing an increase in customer accounts during the quarter of 94,000, or 2.3 percent. Net income for the FPL Group rose to $173 million or 94 cents a share, from $133 million, or 81 cents a share, a year earlier.
Though such results were modestly below Wall Street’s expectations, FPL said it still expects total 2005 earnings of $5.00 to $5.20 a share, in line with analysts' average forecasts of $5.14. (The company mentioned that the severe hurricane season had been the primary cause for the dent in profits.)
Investors don’t seem to mind. Not only do they remain unfazed by a bit of bad weather, they are treating FPL Group and many other utilities and utility funds as if they themselves represent a true growth end of the stock market. Shares of FPL are trading at the upper limits of their 52-week highs, having risen 25 percent over the past year from $60 per share to roughly $75 and change. This parallels the performance of the average utility fund last year, funds that rose roughly 22 percent during 2004 -- more than double the S&P 500's gain. (Those are better results than nearly every other industry category save for real estate and energy specialty funds.)
Recognizing its increasingly solid footing, Moody's Investors Service recently changed its outlook on FPL Group Capital to stable from negative, citing factors that include less short-term debt. (FPL Group Capital provides funding for the unregulated activities of FPL Group – including its wind energy endeavors.) At the same time, Moody's assigned an "A2" issuer rating (its sixth highest rating) to FPL Group with a stable outlook, a very good sign for investors not only counting on FPL’s dividend, but the potential for dividend expansion
Equally, FPL Group has the auspicious honor to have recently scored the highest ranking in the U.S., and second globally, in a World Wildlife Fund (WWF) report analyzing 72 of the world's leading power companies – a report that reviewed current use of available technologies to reduce C02 emissions as well as clear commitments made for future improvements. The report declared FPL a bright spot in the U.S. rankings and stated that its leadership in developing wind energy and a commitment to dramatically improving power plant efficiency placed it at the top of its industry.
I find this not only admirable, but telling. Even if one simply chooses to ignore the soft ‘green’ argument that what’s good for the environment can be good for business, we need only look at the inverse of the argument to witness how badly businesses can perform. Gross negligence within corporate governance has clearly led to some of the largest shareholder disasters the country has ever seen – Enron, WorldCom, Tyco, etc.
To finally find a company offering leadership by example -- that energy innovation, sound management principles and clear strategic thinking can lead to expanding business results – is like a clean clear breath of fresh air. That such results might come from a dividend paying utility is even more refreshing. That such leadership might yet further emerge from its commitment to clean energy should be a buying signal for growth oriented investors – that this will be the next wave of opportunity in energy, and companies such as FPL Group will be leading that charge. |
