Tags: Allete | ALE | utility | stock | power | energy

An Intriguing Small-Cap Utility Play

By    |   Wednesday, 15 Jun 2011 03:43 PM

Allete (ALE), a small capitalization ($1.4 billion) utility based in Duluth, Minn., offers an intriguing value investment. The company runs utilities in Minnesota and Wisconsin. In Minnesota it serves 144,000 residents, 16 municipalities, and some of the nation’s largest industrial customers. Allete’s other units include BNI Coal in North Dakota and Allete Properties, which owns 10,000 acres of real estate in northeast Florida.

Allete uses coal to produce about half of its power, purchases an additional 45 percent, and creates the rest from hydroelectric sources, according to Morningstar research.

The stock has underperformed over the past year. Its 15 percent gain trailed 59 percent of
stocks in the Thomas White International Small-Cap Index (similar to the Russell 2000 Index) and 75 percent of the public utilities stocks in that index, according to Thomas White analysts.

But Allete’s earnings per share soared 28 percent, and its sales gained 15 percent during the period. So this could be a stock ready for bigger gains. It has raised its dividend by 23 percent over the past five years, recently sporting a yield of 4.6 percent.

Strong first quarter

The company’s profit surged 62 percent in the first quarter to $37.2 million from $23 million a year earlier. Operating revenue rose 3 percent to $242.2 million.

"The amount of electricity sold by our regulated utilities improved about 5 percent, a solid indicator of continued economic improvement in the upper Midwest," Allete CEO Alan Hodnik said in a statement.

"Demand for power is ahead of what we anticipated, and we're encouraged by the prospect for new industrial customer growth in our region."

Thomas White analysts have a hold rating on the stock but offer some positive comments. “We project it (earnings) will grow with highest persistence and at a long-term rate of 5 percent,” they write. “Its overall financial quality is high versus other firms.”

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Allete (ALE), a small capitalization ($1.4 billion) utility based in Duluth, Minn., offers an intriguing value investment. The company runs utilities in Minnesota and Wisconsin. In Minnesota it serves 144,000 residents, 16 municipalities, and some of the nation s largest...
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Wednesday, 15 Jun 2011 03:43 PM
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