BUSINESS
OGE Energy Corp., together with its subsidiaries, operates as an energy and energy services provider that offers physical delivery and related services for electricity, natural gas, crude oil, and natural gas liquids in the United States. The company generates, transmits, distributes, and sells electric energy. It provides retail electric service to approximately 879,000 customers, which covers a service area of approximately 30,000 square miles in Oklahoma and western Arkansas; and owns and operates coal-fired, natural gas-fired, wind-powered, and solar-powered generating assets.
INVESTMENT RATING
OGE’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.
OGE ENERGY CORP has a current Value Trend Rating of C (Neutral).
This rating combines consistent signals from two proprietary PTR measures of a stock’s attractiveness. OGE ENERGY CORP has a slightly positive Appreciation Score of 66 and a neutral Power Rating of 46, producing the Neutral Value Trend Rating.
OGE ENERGY CORP’s stock is selling well below targeted value. The current stock price of $33.58 compares to targeted value 12 months forward of $61.
This moderately high appreciation potential results in an appreciation score of 66 (only 34% of the universe has greater appreciation potential.)
OGE ENERGY CORP has a Power Rating of 46. (This neutral Power Rating indicates that OGE’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: the Electric & Other Services Combined comparison group is in a slightly weakened position currently; and recent price action has been neutral. An offsetting factor is earnings estimate behavior for OGE has been slightly favorable recently.
INVESTMENT PROFILE
OGE’s financial strength is above average. Financial strength rating is 62.
Relative to the S&P 500 Composite, OGE ENERGY CORP has moderate Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that OGE is normal risk. Low stock price volatility is a positive for OGE. Relative weaknesses include: low forecasted profitability, and low expected growth. OGE’s valuation is low: high dividend yield, moderate P/E ratio, and low price/book ratio. OGE has unusually low market capitalization.
CURRENT SIGNALS
OGE ENERGY CORP’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
OGE ENERGY CORP’s current technical position is very weak. The stock price is in a 13.8 month down move. The stock has declined 19.2% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Important positive changes in OGE ENERGY CORP (NYSE: OGE) investment behavior have recently occurred: the stock rose on very heavy volume.
Positive development: significant quarterly earnings acceleration occurred. Negative development: significant quarterly sales deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
OGE ENERGY CORP (NYSE: OGE) has reported earnings for its fourth fiscal quarter (ending December 31) of $0.24 versus $0.25 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $2.08 versus $3.33 for the same period a year ago.
OGE ENERGY CORP (NYSE: OGE) stock enjoyed a large increase of 2.0% on 2/21/24. The stock closed at $33.58. Moreover, trading volume in this advance was exceptionally high at 205% of normal. The stock has performed in line with the market over the last nine months and has risen 2.0% during the last week.
CASH FLOW
In 2022, OGE ENERGY CORP generated a very significant increase in cash of +$88 million ( ). Sources of cash were much larger than uses. Cash generated from 2022 EBITDA totaled +$1,110 million. Non-operating sources contributed +$310 million (+28% of EBITDA). Cash taxes consumed -$224 million (-20% of EBITDA). Re-investment in the business amounted to -$192 million (-17% of EBITDA). On a net basis, debt investors pulled out -$608 million (-55% of EBITDA) while equity investors removed -$309 million (-28% of EBITDA).
OGE ENERGY CORP’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Oge Energy Corp Peer Group. In most years, OGE ENERGY CORP was in the top quartile. Currently, OGE ENERGY CORP is upper quartile at +28% of EBITDA (+$310 million).
OGE ENERGY CORP’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Oge Energy Corp Peer Group. (Since 2019 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, OGE ENERGY CORP was in the third quartile and second quartile. Currently, OGE ENERGY CORP is below median at -20% of EBITDA (-$224 million).
OGE ENERGY CORP’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Oge Energy Corp Peer Group. In most years, OGE ENERGY CORP was in the top quartile and second quartile. Currently, OGE ENERGY CORP is above median at -17% of EBITDA (-$192 million).
OGE ENERGY CORP’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Oge Energy Corp Peer Group. In most years, OGE ENERGY CORP was in the third quartile and second quartile. Currently, OGE ENERGY CORP is lower quartile at -55% of EBITDA (-$608 million).
OGE ENERGY CORP’s Equity Investors, %EBITDA has experienced a minor downtrend over the period. This downtrend was accompanied by stability for the Oge Energy Corp Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp recovery.) In most years, OGE ENERGY CORP was in the second quartile and lower quartile. Currently, OGE ENERGY CORP is slightly above median at -28% of EBITDA (-$309 million).
OGE ENERGY CORP’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Oge Energy Corp Peer Group as well. In most years, OGE ENERGY CORP was in the lower quartile and top quartile. Currently, OGE ENERGY CORP is substantially above median at +8% of EBITDA (+$88 million).
OGE ENERGY CORP’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Oge Energy Corp Peer Group as well. In most years, OGE ENERGY CORP was in the lower quartile and third quartile. Currently, OGE ENERGY CORP is substantially below median at +3%.
PROFITABILITY
OGE ENERGY CORP’s return on equity has eroded very significantly since 2013. The current level of 9.2% is 1.13X the low for the period and is -27.7% from the high.
This very significant erosion was due to very strong negative trend in pretax operating return and strong negative trend in non-operating factors.
The productivity of OGE ENERGY CORP’s assets declined over the full period 2013-2023: asset turnover has experienced a downtrend that accelerated very sharply after the 2021 level.
Reinforcing this trend, pretax margin experienced a strong overall downtrend although it experienced a very sharp recovery after the 2022 low.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
OGE ENERGY CORP’s return on equity is slightly above median (9.2%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is slightly above median (3.8%) reflecting asset turnover that is above median (0.22X) and at median pretax margin (17.1%).
Tax “keep” rate (income tax management) is above median (86.8%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is at the lower quartile (2.81X).
GROWTH RATES
There are no significant differences between OGE ENERGY CORP’s longer term growth and growth in recent years.
OGE ENERGY CORP’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 2.3% per year.
Total asset growth has been 3.4% per year.
Annual E.P.S. growth has been 5.3% per year.
Equity growth has been 3.7% per year.
OGE ENERGY CORP’s consensus growth rate forecast (average of Wall Street analysts) is 2.3% — in line with the average of the historical growth measures.
Relative to the Oge Energy Corp Peer Group, OGE ENERGY CORP’s historical growth measures are erratic. Revenue growth (2.3%) has been at the upper quartile. E.P.S. growth (5.3%) has been at the upper quartile. Equity growth (3.7%) has been at median. Total asset growth (3.4%) has been below median.
Consensus growth forecast (2.3%) is lower quartile.
PRICE HISTORY
Over the full time period, OGE ENERGY CORP’s stock price performance has been significantly below market. Between April, 2013 and February, 2024, OGE ENERGY CORP’s stock price fell -7%; relative to the market, this was a -70% loss. Significant price move during the period: 1) February, 2016 – January, 2020: +84%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -11.4% is substantially below median relative to the S&P 500 Composite.
In addition to being substantially below median relative to S&P 500 Composite, current annual total return performance through January, 2024 of -11.4% is below median relative to OGE ENERGY CORP Peer Group.
Current 5-year total return performance of 0.2% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of 0.2% relative to S&P 500 Composite, OGE ENERGY CORP’s total return performance is below median relative to OGE ENERGY CORP Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, OGE’s overall valuation is low. The highest factor, the ratio of enterprise value/revenue, is slightly above median. Ratio of enterprise value/earnings before interest and taxes is below median. Price/earnings ratio is near the lower quartile. Ratio of enterprise value/assets is lower quartile. The lowest factor, the price/equity ratio, is lower quartile.
Relative to OGE ENERGY CORP Peer Group, OGE’s overall valuation is quite low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is at the lower quartile. Ratio of enterprise value/revenue is at the lower quartile. Price/earnings ratio is at the lower quartile. Ratio of enterprise value/assets is at the lower quartile. The lowest factor, the price/equity ratio, is near the lower quartile.
OGE ENERGY CORP has a minor value gap compared to the median. For OGE to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 4.07X to 4.28X. If OGE’s ratio of enterprise value/revenue were to rise to 4.28X, its stock price would be higher by $3 to $37.
For OGE to achieve upper quartile valuation relative to the OGE ENERGY CORP Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 4.07X to 8.26X. If OGE’s ratio of enterprise value/revenue were to rise to 8.26X, its stock price would increase by $59 from the current level of $34.
VALUE TARGETS
OGE’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.
OGE ENERGY CORP’s current Price Target of $61 represents a +82% change from the current price of $33.58.
This moderately high appreciation potential results in an appreciation score of 66 (only 34% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 66, the neutral Power Rating of 46 contributes to an Value Trend Rating of C.
OGE ENERGY CORP’s current Price Target is $61 (+0% from the 2022 Target of $61 and +82% from the 02/21/24 price of $33.58). This plateau in the Target is the result of a +4% increase in the equity base and a -4% decrease in the price/equity multiple. The forecasted increase in cost of equity has a large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. Partially offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 9.1% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is below the 2014 peak of 11%.
PTR’s growth forecast is 6.0% — slightly below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2019 and 2022. The current forecast is above the 2021 low of 2%.
PTR’s cost of equity forecast is 5.2% — in line with recent levels. Forecasted cost of equity exhibited a modest, erratic decline between 2014 and 2022. The current forecast is steady at the 2020 peak of 6.9%.
At OGE ENERGY CORP’s current price of $33.58, investors are placing a negative value of $-11 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 8.0% per year, and a return on equity of 7.7% versus a cost of equity of 4.6%.
PTR’s 2024 Price Target of $61 is based on these forecasts and reflects an estimated value of existing assets of $42 and a value of future investments of $19.
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