Tags: Pepco | Holdings | yield | POM

Pepco Holdings Offers Powerful Yield, but Price Questioned

By    |   Tuesday, 21 August 2012 03:44 PM

Pepco Holdings (POM) offers a powerful dividend at the moment, with a 5.6 percent yield at recent prices. Analysts, however, believe that the power provider has obstacles ahead that could contain price appreciation.

Pepco Holdings is a holding company that through regulated public utility subsidiaries is engaged primarily in the transmission, distribution and default supply of electricity and, to a lesser extent, the distribution and supply of natural gas.

It operates as Potomac Electric Power Company, which was incorporated in Washington, D.C. in 1896 and became a domestic Virginia corporation in 1949; Delmarva Power & Light Company, which was incorporated in Delaware in 1909 and became a domestic Virginia corporation in 1979; and Atlantic City Electric Company, which was incorporated in New Jersey in 1924.

Through Pepco Energy Services and its subsidiaries, Pepco Holdings also provides energy efficiency and renewable energy services primarily to government and institutional customers. Pepco Energy Services is in the process of winding down its competitive electricity and natural gas retail supply business and preparing for the retirement of its two oil-fired generating facilities, management said in a recent filing.

In addition, through Potomac Capital Investment Corporation (PCI), Pepco holds several cross-border energy lease investments.

Pepco Holdings has a market cap of $4.43 billion in a sector, electric utilities, where the average company size is $6.67 billion. Its trailing 12-month P/E ratio is 18.99 and its five-year projected price-to-earnings-growth (PEG) ratio is 4, compared to 6.09 for the sector.

Its projected earnings per share growth for the coming year is 7.5 percent, compared to a sector average of 4.74 percent.

Inconsistent weather

Analysts are mixed on POM, with an outperform call from CSFB but a sell from Ned Davis Research.

“Pepco has to comply with regulatory changes, which could escalate operating costs and lower margins. Plus, the delay in the service date of a transmission project and/or inconsistent weather patterns could impact the performance of the company,” Zacks Investment Research analysts wrote on Aug. 8, rating the stock a hold.

Pepco Holdings next reports on Oct. 23.

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Tuesday, 21 August 2012 03:44 PM
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