1. Utilities Stock Presentation
By Nitish Gupta, Veronica Groebner and Jiawei Hou

2. Outline Sector Recommendation Recap/Overview American Electric Power
NextEra Energy, Inc
NiSource
Stock Recommendations and Conclusion

3. *Table taken from February 2018 SIM Portfolio Appraisal

5. HOLD (Underweight Relative to S&P 500)
Sector Recommendation:
Interest Rates
Steady Revenue Business Models
Defensive Sector

6. Recommendation Summary
Company
Current Basis
Proposed basis
Current Price
Target
Price
Upside (Downside)
Recommendation
NextEra
257
$161.68
$173.98
7.60%
Hold
American Electric
Nil
$68.71
$68
-0.09%
NiSource
$24.09
23.94
-0.70%

8. American Electric Power
Market Data:
Current Price: $68.71
Target Price: $68
Market Capitalization: $33.71B
Shares Outstanding: 492M
52 Week Range: $63.32–$78.07
YTD Change: -6.61%
Beta: 0.37
P/E : 18.78
EPS : $3.68
Revenue : $15.42B (2017)
AEP is one of the largest power generation, transmission and distribution company in the United States with presence in 11 states.
Based in Columbus, OH, AEP operates about 60 generation stations representing approximately 26,000 megawatts of generation capacity.
Company’s business is divided in four segments: Vertically Integrated Utilities; Transmission and Distribution Utilities; Generation and Marketing; and AEP Transmission Holdco

9. Key Business Drivers Revenue Visibility and Entry Barriers
Focus on Core Regulated Business
Attractive Dividend
Capital Investments
Investment in Renewable Energy

10. Valuation DCF Valuation Sensitivity Analysis Source: Analyst estimates

11. Valuation AEP, Xcel Energy Inc., Duke Energy Corp., Southern Co.
P/E Ratio
Operating Margin
Return on Assets
Debt to Equity

12. Key Business Risks Recommendation: HOLD
Fluctuating Demand due to weather
Volatile Commodity Prices
Regulated Business
Investment Recovery
Interest Rate Hike
Recommendation: HOLD

14. Company Information Performance History
Ticker
NEE
Sector
Utilities
Industry
Electric
Closing Price 4/2/18
$161.68
Market Cap
76,442.8M
Shares (diluted)
473.0M
Avg. Daily Vol.
2,363,919
Started in 1925 as Florida Power and Light
Headquartered in Juno Beach, Florida and serves over 30 states as well as Canada
Main Subsidiaries
Florida Power and Light (FPL)
Main revenue source
NextEra Energy Resources (NEER)
Company growth opportunities
Performance History
52-week low
$127.09
52-week high
$164.71
1-year return
26.89%

15. Market Comparison
Name
Market Cap (billions)
1-yr Return
NextEra Energy
76.44
29.59%
Duke Energy
54.02
-2.23%
Dominion Energy
45.12
-10.23%
Southern Co
44.57
-7.15%
American Electric Power
33.61
5.29%
Average
22.60
2.61%
NextEra accounts for the largest share of the S&P500 Utilities sector at a market cap of $76B, holding 12% of the market share.
Among the largest companies within the sector, NEE had the greatest return last year at almost 30%.
NEE is continuing to grow and yield high return even though it is the largest in the sector.

16. Key Positives Competition is low—high entry barriers
Leading Utilities companies cannot keep up with NEE’s growth
Safety in the defensive dividend
Security of a utility companies without giving up the high-yield returns
Focus on renewable energy projects
JinkoSolar contract—Florida-based solar panel factory
Provide 7M solar panels (2,750 mW) to NEE
Not done utilizing Tax Cut benefits
Moving assets back from Canada to United States to repatriate
10-year contract to still operate Canadian plants
Strong company values
Commended for CSR and ethical business practices

17. Concerns Interest Rate Hikes
Conservative investors shift to Treasury Bills/Notes/Bonds, taking money out of utilities sector
Dividends become less valuable when accounting for a higher discount rate
SIM specific: Fund allocation
Risk investing in NextEra instead of investing in a company that ends up with greater returns
Risky Projects
JinkoSolar
Canadian withdrawal
Geographic growth is hard because of variations in regulations

18. Valuation
Notes:
Terminal Free Cash Flow Growth Rate is high for a utility company. Most utility companies would reflect a growth rate of 3%-3.5%
Terminal Discount Rate is high in order to reflect the risk of assuming high growth. Federal Interest Rate is very low currently and utilities are less risky than other sectors.

19. If You Don’t Believe Me

20. Individual Portfolio: LONG-TERM BUY
Recommendation
Individual Portfolio: LONG-TERM BUY
Diversifies the portfolio while still yielding high returns
Good stock to have and “forget about”
SIM Portfolio: HOLD
Utilities Sector Recommendation is to HOLD at underweight position
NEE is the only utilities stock held by the SIM portfolio

21. NiSource Belongs to the Utilities sector of the S&P 500
One of the largest fully regulated utility companies in the

23. Key Business Drivers
Demand Growth
Capital Expenditures

24. Financial analysis & Valuation
Shares Outstanding
332
Current Price
$24.11
Implied equity value/share
$23.94
Upside/(Downside) to DCF
-0.7%
Debt
14,621
Cash 26
Cash/share
0.08
Economic analysis: defensive and commodity
Financial forecasts: Tax Reform

25. Sensitivity & Peers NiSource Industry S&P 500 PE Ratio 61.83 16.76
15.7
Forward PE
18.73
15.46
18.8
PB Ratio
1.88
1.59
2.77
PS Ratio
1.64
1.66
1.49
EV/EBITDA
12.38
10.17 /

26. Risks Regulation Change: deregulation, environmental regulators
Technology Change: solar panel, renewable energy

27. Recommendation: HOLD

28. Recommendation Summary
Company
Current Basis
Proposed basis
Current Price
Target
Price
Upside (Downside)
Recommendation
NextEra
257
$161.68
$173.98
7.60%
Hold
American Electric
Nil
$68.71
$68
-0.09%
NiSource
$24.09
23.94
-0.70%