Electric Utilities

Cinergy Corp.

Cinergy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIN)") else Response.Write("(NYSE: CIN)") end if %> was formed in October 1994 from the merger of two producers of electricity, Cincinnati Gas & Electric and PSI Energy of Indiana. Cinergy provides some of the lowest electricity rates in the Midwest. This coupled with its status as a low-cost producer puts the company in a keen competitive position to grab market share once the retail wars begin to heat up. The company is characterized by aggressive management that has gone after overseas acquisitions that in many instances are almost immediately accretive to earnings.

Keeping in mind that the total return rather than the highest current income is the proper technique for maximizing wealth in utilities, Cinergy represents an excellent opportunity for total return with an estimated 5-year earnings per share compound annual growth rate (CAGR) of 6%, and half that figure for its dividend CAGR. The dividend growth rate is critical because it drives the income stream and thereby the market value of the assets. The Board of Directors feels that dividend growth is sustainable even as competitive pressures loom. The dividend yield is currently a respectable 5.34%. Trading at 14 times EBITDA (earnings before interest, taxes, depreciation and amortization), Cinergy offers an interesting play on both electricity and natural gas.

Latest Financials

Earnings for the second quarter of 1997 were $0.35 per share, the same as the second quarter of 1996 largely because of unusually mild weather during the quarter. Net income was $55.5 million compared with $56 million in the second quarter a year ago, which included a write-off of $17.4 million, or $0.07 per share. For the 12 months ended June 30, 1997, electric kwh sales were up 30.2% and gas mcf sales and transportation volumes were down 2.4% when compared with the same period in 1996.

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