It’s not often that you see a utility company with a 5-year projected EPS growth rate in the double-digits. However, management at electric utility ITC Holdings Corp (ITC) expects to grow its earnings between 15% and 17% per year through 2015.
The company recently reported another solid quarter, marking its 11th consecutive positive earnings surprise. It is a Zacks #2 Rank (Buy) stock.
Third Quarter Results
ITC reported third quarter earnings per share of 75 cents, a penny more than the same quarter in 2009, and 5 cents ahead of the Zacks Consensus Estimate.
Operating revenues were up 17.6% year-over-year. The increase was due in part to higher recoverable expenses associated with operating and maintenance expense.
Operating expenses increased 36.2%, however, due to significantly higher operating and maintenance expenses and higher general and administrative expenses. Meanwhile, operating income increased 4.7% year-over-year.
Outlook
Analysts revised their estimates higher for 2010 and 2011 following the solid quarter. The Zacks Consensus Estimate for 2010 is $2.80, representing 8% EPS growth over 2009. The 2011 estimate is currently $3.33, equating to 19% EPS growth.
Dividend
ITC produces stable cash flow and has rewarded its shareholders as a result. Since going public in 2005, ITC has paid a dividend every quarter and has raised it every year at a compound annual rate of 5.0%. It has a dividend yield of 2.2%.
This slow and steady dividend hike is pretty common among other electric utility companies.
For instance, American Electric Power Co (AEP) has increased its dividend at a 5.6% compound annual rate since 2005. Excelon Corp (EXC) has also averaged 5.6%, while Xcel Energy (XEL) is at 3.3%.
Shares trade at 21.6x forward earnings, a premium to the industry average of 13.7x. Its PEG ratio is a reasonable 1.5 however.
Its price to book ratio of 2.8 is also higher than its peers at 1.3, but keep in mind that its return on equity is higher than its peers too (14% vs. 9%).
ITC Holdings Corp is headquartered in Novi, Michigan and has a market cap of $3.1 billion.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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