NorthWestern Corp. – Value Analysis (NYSE:NWE) : September 1, 2017

Capitalcube gives NorthWestern Corp. a score of 56.

Our analysis is based on comparing NorthWestern Corp. with the following peers – MDU Resources Group, Inc., PG&E Corporation, Avista Corporation, NiSource Inc, PNM Resources, Inc., Exelon Corporation, IDACORP, Inc., CenterPoint Energy, Inc., Black Hills Corporation and Xcel Energy Inc. (MDU-US, PCG-US, AVA-US, NI-US, PNM-US, EXC-US, IDA-US, CNP-US, BKH-US and XEL-US).

Investment Outlook

NorthWestern Corp. has a fundamental score of 56 and has a relative valuation of NEUTRAL.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • It’s current Price/Book of 1.70 is about median in its peer group.
  • The market expects NWE-US to grow more slowly than its peers and for its median ROE to decline.
  • NWE-US has relatively high profit margins while operating with median asset turns.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • Over the last five years, NWE-US‘s return on assets has declined from above median to about median among its peers, indicating declining relative operating performance.
  • The company’s relatively high gross margin suggests some differentiation with pricing advantages versus peers.
  • While NWE-US‘s revenue growth in recent years has been above the peer median, the stock’s P/E ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company is likely overinvesting in a business with only median returns.
  • NWE-US seems to be constrained by the current level of debt.

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Leverage & Liquidity

NWE-US is debt-constrained.

  • With debt at a relatively high 41.97% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 41.97%), and interest coverage level of 2.66x, NWE-US seems debt-constrained.
  • All 10 peers for the company have an outstanding debt balance.

NWE-US has maintained its relatively high leverage profile from the recent year-end.

  • NWE-US‘s interest coverage is similar to its five-year average interest coverage of 2.41x.
  • Compared to 2016, interest coverage has remained relatively stable for both the company (2.66x) and the peer median (2.95x).
  • NWE-US‘s debt-EV is its lowest relative to the last five years and compares to a high of 46.38% in 2012.
  • The decrease in its debt-EV to 41.97% from 43.63% (in 2016) was also accompanied by a decrease in its peer median during this period to 41.97% from 43.63%.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
MDU Resources Group, Inc. 25.76 1.46 4.75 30.76
PG&E Corporation 35.19 0.87 3.98 34.88
Avista Corporation 40.72 0.47 3.2 24.09
NiSource Inc 50.03 0.46 2.54 14.24
PNM Resources, Inc. 46.82 0.46 2.42 17.6
Exelon Corporation 51.11 0.88 2.17 23.94
IDACORP, Inc. 29.01 2.2 3 22.52
CenterPoint Energy, Inc. 45.55 0.94 2.26 22.12
Black Hills Corporation 46.9 0.82 2.95 14.93
Xcel Energy Inc. 39.91 0.75 3.42 22.03
NorthWestern Corporation 41.97 0.43 2.66 15.68
Peer Median 41.97 0.82 2.95 22.12
Best In Class 25.76 2.2 4.75 34.88

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Company Profile

NorthWestern Corp. engages in generating and distributing electricity and natural gas. It operates through the following segments: Electric Operations, Natural Gas Operations, and All Other. The Electric Operations segment includes generation, transmission, and distribution of electric utility business as a vertically integrated generation transmission and distribution utility in Montana and South Dakota. The Natural Gas Operations segment includes the production, storage, transmission, and distribution of natural gas. The All Other segment consists of unallocated corporate costs. The company was founded in November 1923 and is headquartered in Sioux Falls, SD.

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