For its third quarter, this midwestern utility beat analysts’ EPS estimates by $0.02. The shares have a current dividend yield of 4.10%, paid quarterly.
Spire Inc. (SR)
From Sure Retirement Newsletter
Spire Inc. is a public utility holding company based in St. Louis, Missouri. The company provides natural gas service through its regulated core utility operations while engaging in non-regulated activities that provide business opportunities. Spire was previously known as the Laclede Group, trading under the symbol LG. Laclede Gas Company was one of the first twelve industrial companies that made up the Dow Jones Industrial average and was first listed on the NYSE on November 14th, 1889.
Spire has five gas utilities, serving 1.7 million homes and businesses across Alabama, Mississippi, and Missouri. This makes Spire the 5th largest publicly traded natural gas company in the country. Spire has a market cap of $3.4 billion and generated $1.9 billion in 2020 sales.
For the third quarter, the company generated $327.8 million in sales, up 2.1% compared to Q3 2020. The increase in revenue year-over-year was driven by higher usage. For the first nine months of fiscal 2021, revenue is up 21.3%, also driven by higher usage compared to the year ago period. Net income equaled $5.3 million or $0.03 in the quarter, up from a loss of $92.3 million or -$1.87 per share in the year ago period.
The management team has affirmed its fiscal 2021 guidance of $4.30 to $4.50 in earnings-per-share (EPS) for the year. The company’s long-term growth target is between 5% and 7%, driven by consistent growth of the company gas utilities. We are forecasting $4.45 in earnings-per-share for 2021.
Spire’s competitive advantage is its state-regulated utility business, which requires excessive capital expenses for infrastructure and poses high entry barriers to potential competitors in the area. During the Great Recession of 2008- 2009, the company grew earnings from $2.31 in 2007 to $2.64 in 2008 and $2.92 in 2009. The dividend was well covered, and Spire increased its dividend by 2.7% in 2008. This shows the dividend safety and the resilience of this company. In addition, Spire has a stable balance sheet with a debt-to-equity ratio of 1.4 and an interest coverage ratio of 4.0.
Over the last ten years, Spire has grown earnings-per-share at a compound annual growth rate of 3.4%. However, over the past five years, EPS has grown by over 5.3%. We forecast Spire will grow earnings for the next five years at an average rate of 5.5% per year. Most of this growth will come from a growing customer base in the region and increasing utility fees.
The dividend has been growing at a similar rate to earnings, keeping the payout ratio near the 60% range, and we expect this to continue.
Based on $4.45 in anticipated earnings, shares of Spire are trading at a price-to-earnings ratio of 14.7. Our fair value estimate is 16 times earnings, which implies the possibility of 1.7% annual gains from the valuation. When combined with the 4.0%+ starting yield and 5.5% expected earnings-per-share growth rate, this suggests the potential for 10.6% annual total returns over the next five years.
Ben Reynolds, Bob Ciura, Josh Arnold, & Eli Inkrot, Sure Retirement Newsletter, suredividend.com, ben@suredividend.com, September 2021