Report calls NV Energy stock undervalued

Don't let that falling stock price fool you: The markets have undervalued power utility NV Energy, and the company is well-positioned for strong earnings growth, a national business publication says.

In a March 11 report, Barrons.com called NV Energy, the parent company of local utility Nevada Power Co., one of two utility stocks nationwide with "comeback power." The other company named in the report is Michigan's CMS Energy.

The report noted that NV Energy's share price fell 40 percent in 2008, and 16 percent from January through mid-March. But Barrons.com blamed stock sell-offs, rather than economic troubles, for the erosion in value.

In early 2008, hedge funds held more than a third of NV Energy's shares. That proportion changed as shareholders sought to redeem stock and hedge funds sold shares to maintain required investment margins. One fund's stake in NV Energy dropped from almost 30 percent in early 2008 to 5 percent in February, Barrons.com noted. It's this "forced selling" that has taken the biggest toll on NV Energy's share price.

Michael Yackira, president and chief executive officer of NV Energy, told the Review-Journal on Tuesday that he was surprised the article focused on hedge-fund stock sales, because the topic didn't come up in his conversation with Barrons.com's reporter.

Yackira said hedge funds' dumping their NV Energy stakes is "certainly a part of" the reason behind the company's slumping stock.

More important than sell-offs, though, is the recession.

"The Nevada economy has really been at the forefront of the news, whether it be slower traffic at McCarran International Airport, lower gaming revenue, foreclosures or unemployment," Yackira said. "All those factors seem to suggest the Nevada economy is being hit as hard as, if not harder than, other cities."

Developments involving plans for a coal-fired power plant in Ely might also factor into the company's performance.

When NV Energy announced in 2006 that it would build the plant, the company's share price began rising, because large capital investments often hint at continued earnings growth. But capital markets fell apart in 2008, and concerns over the ability to raise funding for big projects hurt stocks of companies planning large capital investments.

NV Energy announced in February that it would postpone the plant until it could capture and store carbon emissions from burning coal.

"While you won't see that directly in the share price, there was some risk taken off the table by our postponing (the Ely plant)," Yackira said.

The utility's customer growth slowed from around 4 percent a year in the 1990s and early 2000s to 1 percent in 2008, but demographers' projections call for population expansion to return to prerecession levels as early as 2010. Still, NV Energy executives say they're prepared for a downturn that lasts beyond 2010. They aim to stay conservative on costs and large-scale development. Plus, their three-pronged strategy emphasizing conservation and energy efficiency, development of renewable-energy sources and the building of clean-coal plants such as the Ely station will work in any economic environment, Yackira said.

Analysts agree NV Energy's stock has growth potential.

Michael Lapides of Goldman Sachs released a January forecast predicting a total upside return of 71 percent for NV Energy, versus an average of 35 percent to 40 percent for other smaller utilities.

And Barclays Capital's Daniel Ford said in a January report that NV Energy is "the most undervalued opportunity in our regulated utility space," trading at a 26 percent discount based on 2009 earnings estimates, and a 33 percent discount based on 2010 projections.

NV Energy's shares rose 36 cents, or 4.01 percent, on Wednesday to close at $9.33 on the New York Stock Exchange.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.