Cold Weather Gave Lift To Some Utilities In Q1


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A cold winter is being cited as a reason why many retailers have missed quarterly estimates.

But cold weather is a boon to firms such asAmerican Electric Power ( AEP ), an Ohio-based electric utility that serves 11 states.

While counting on weather is not a strategy, weather can cut both ways for utilities. Heating-related usage rises, but outages create restoration costs.

On balance, however, weather was a winner for AEP in Q1, and other positives lined up.

Earnings rose 44% in the first quarter, which represented acceleration from Q4's 20% gain and Q3's 8% pop. Revenue stepped up from flat in Q3 to 4% and 21% in the following quarters.

The 21% revenue pop was the best in at least 19 quarters.

After-tax margin was 12% vs. 10.1% in the year-ago quarter. Pretax margin in 2013 was 15.5%, the highest in at least nine years.

In its Form 10-Q report, the company attributed the improvements to successful rate proceedings, weather-related usage increases and higher market prices.

The good results had to overcome lost sales because of the closure of the Ormet aluminum smelter in Hannibal, Ohio. AEP's industrial sales fell 2.9% in Q1. Apart from Ormet, sales rose 2.2%.

Ormet's impact, though, is short-term. Power sales to Ormet will now be diverted to wholesale markets, which generally have higher prices.

American Electric Power pays a quarterly dividend of 50 cents a share. The annualized yield is 3.8%. While the dividend is up from 35 cents a share in 2005, several years involved no increase. In 2003, the dividend was slashed from 60 cents a share when wholesale electricity prices collapsed.

The stock recently cleared a 50.99 buy point in a flat base. Shares remain in a buy zone despite a low-volume breakout.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance Investing Ideas
Referenced Stocks: AEP

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