Bottom of the Barrel: Putting South Jersey on the Map

Sometimes boring can be good for a portfolio. For South Jersey Industries(SJI Quote), a mundane business has provided powerful results for shareholders.

This Folsom, N.J., company provides natural-gas services to nearly 300,000 customers in -- guess where -- southern New Jersey, including Atlantic City. Its customer mix provides stability to its earnings flow -- 31% are residential customers with highly predictable bills.

Yet the company also benefits from a commercial and industrial base that makes up more than 10% of its base. The balance of South Jersey's earnings comes from wholesale marketing of natural gas and power generation. In short, the company has a solid base of customers with a meaningful portion of business able to generate growth.

Generating Profits

South Jersey's business mix is firing on all cylinders. The company's regulated natural-gas distribution business -- South Jersey Gas -- had a great first quarter, aided by a cold winter and high demand for natural gas. The company saw demand surge as temperatures were 6% colder than average. While part of the profit potential was mitigated by a temperature adjustment feature in the company's rate plan, revenue and earnings still increased nearly 13% from a year ago.

Utilitarian Growth South Jersey Industries powers higher
Year	Revenue (millions)	Earnings Per Share
2002	$505.10	$2.43
2003E	725.00	2.65
2004E	750.00	2.80
Source: Value Line, company reports, TSC research

Earnings also were helped by the company's nonregulated businesses, primarily its retail gas marketing operations. In the first quarter, South Jersey posted a 21% increase in profits in its unregulated business unit.