NEW YORK (TheStreet) -- TheStreet's Jim Cramer believes several utilities are still undervalued after the sector's recent run, including Dominion Resources (D - Get Report), Duke Energy (DUK - Get Report), Con Ed (ED - Get Report) and American Electric Power (AEP - Get Report), but these are all about interest rates going lower.
Cramer says in order for these stocks, and the rest of the energy sector, to climb, the 10-year treasury note must take a run at 2.5%. He thinks this can happen because of a shortage of high-quality interest rate bonds. Secondly, the U.S. looks "very cheap" at 2.6% compared to what Italy, Portugal and Spain are paying.
If interest rates hit 2.5% or 2.4%, then Cramer sees another boost to utilities; otherwise, he feels they are mostly tapped out.
"We rate DOMINION RESOURCES INC (D) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, growth in earnings per share, compelling growth in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- D's revenue growth has slightly outpaced the industry average of 1.8%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- DOMINION RESOURCES INC has improved earnings per share by 13.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOMINION RESOURCES INC increased its bottom line by earning $3.09 versus $2.49 in the prior year. This year, the market expects an improvement in earnings ($3.53 versus $3.09).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multi-Utilities industry. The net income increased by 165.4% when compared to the same quarter one year prior, rising from -$659.00 million to $431.00 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Multi-Utilities industry and the overall market, DOMINION RESOURCES INC's return on equity exceeds that of both the industry average and the S&P 500.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: D Ratings Report