It's a relatively safe assumption that Pepco Holdings, Inc. (NYSE:POM) - aka Potomac Electric Power Company - isn't on a lot of investors radars; utility companies rarely have the sizzle that active investors like to look for. Yet, even as a utility stock, POM offers something many other stocks don't right now... some upside in the foreseeable future.
The $4.45 billion company supplies electricity and natural gas to 1.8 million customers, primarily n the mid-Atlantic region, though it's got a fair amount of interest in cross-border energy leases. It's also trading at a trailing P/E of 16.9, and a forward-looking one of 15.5 That's respectable, but nothing that would convince an investors to buy Potomac Electric Power Company, Pepco Holdings, if he or she wasn't already going to. In fact, there's nothing particularly enticing about POM at all. Yet, there's something vaguely compelling with Pepco.
Part of that draw could be the fact that Pepco Holdings - if nothing else - pays a nice dividend; the current yield is 5.6%. And, POM never misses a payment. It's been religiously cranking up the payout since 2001.
Perhaps part of the draw could be the fact that analysts are finally warming up to it. Wells Fargo recently upgrades Potomac Electric Power Company from a market perform to an outperform, citing a more favorable regulatory environment on the horizon for utility companies. Still, on a scale of 1 to 5 (where 1 is a strong buy and 5 is a strong sell), POM rates an average of 2.7. And, given the bullish bias with most analyst ratings, that mediocre score could almost be seen as a bearish overall view from the analytical community.
Still, there's just something about Pepco Holdings. It may well be the chart.
To put it bluntly, POM has gone nowhere (literally) for a couple of years. The stock's trading at $19.46 right now, versus a price in the $19/$20 range back in late 2010. It's bounced around in a range between $18.00 and $20.00 since then, but has made no net progress. That sideways movement may work to a newcomer's advantage, however, given what else we're seeing on the chart below.
Though it would be in accurate to say that Potomac Electric Power Company had been consistently growing its bottom line coming out of the early-2011 lull, it would also be inaccurate to see it hasn't been growing its earnings; TTM income of $0.62 in early 2011 was TTM income of $1.16 as of the last look. And, that trend is still pointed higher. Yet, the stock hasn't budged during that time to reflect that company's progress.
This is where faith and mettle is tested. The company's doing its job, but the stock isn't.
The solution? Patience will be rewarded. As was noted above, the fact that POM is consolidating between $18 and $20 may ultimately mean a bigger, faster breakout once all that pent-up energy is unleashed. The market appears to be waiting on the company just to be sure the earning trend is for real, but after two years of strong growth (for a utility name), the market's not going to wait much longer. If and when that ceiling at $20.00 is broken (well, $20.50 actually), it could start a buying avalanche from all the people who've been waiting on the sidelines.
Just an idea to keep at your fingertips, if you're not ready to put it in your portfolio yet.