Portland General Electric Company Case Study

         Krause Fund Research[pic 1][pic 2]

         Fall 2016

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      Utilities

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  Recommendation: BUY

Analysts

John Brewer Callahan

john-callahan@uiowa.edu

Tianqi Yang

Tianqi-yang@uiowa.edu        

Company Overview

Portland General Electric Company (POR) is an electric utility company headquartered in Portland, Oregon that operates in the generation, wholesale purchase, transmission, and distribution within a service area of seven counties that consists of 850,000 plus customers. PGE generates their resources from six natural gas and coal-fired thermal plants, two wind farms and seven hydroelectric facilities, all of which are 100% regulated. We are currently recommending a BUY recommendation for Portland General Electric Company (POR) at a current price of $41.82 on November 15, 2016.

Stock Performance Highlights              

52 week High        $45.21

52 week Low        $34.99

Raw Beta Value        0.36

Beta         0.521

Average Daily Volume        553,006

Share Highlights

Market Capitalization        $3.7198B

Shares Outstanding        88.926M

Book Value per share        $25.98

EPS (2015 Annual)        $2.04

P/E Ratio        21.03

Dividend Yield        2.97%

Dividend Payout Ratio        59.30%

Company Performance Highlights

ROA        2.7%

ROE        8.5%

Accounts Receivable Turnover        7.5

        November 15, 2016

Portland General Electric (NYSE: POR)                                                                

Current Price   $41.82

Target Price   ($52.00-$62.00)

POR Offers Stable Value

• Government Incentives: The combination of power is shifting from traditional thermal energy to renewable energy. To push this evolution forward, the government encourages utility companies by providing significant tax credits. For PGE, government entities provide an average tax credit of 17.4% in last three fiscal years.
• Higher Population Growth in Portland than National Average: Portland ranks the region number 19 on the list of US metro areas with the greatest number of new residents, and most of those new residents are of the younger generation. This positive situation provides PGE, who serves the entire Portland area, a stable growth for five years.  
• An Outstanding Company in Utility Industry: Achieved by higher historical and forecasted growth rate, PGE has more possibility to generate higher growth than comparable companies.  
• Highly Regulated: The benefit from government incentives and regional monopoly status trades off strict restriction. Government supervised company's operating growth for retail price and revenue. POR is currently spending an enormous amount of money to meet emission requirement.
• Overall, PGE is a very stable growth company with a better prospect than other comparable companies. PGE expands to renewable energy by constructing solar and wind power plant. The current development is expensive but its expansion tax deductive. As the monopoly electricity provider in Portland, PGE can transfer the benefit of population growth to its advantage. Meanwhile, as renewable energy tends to weight more in company's total electricity generation, the cost to satisfy emission requirement will be lower.

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Stock Performance: (Source: Yahoo Finance)38 

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We are issuing a "BUY" recommendation on Portland General Electric Company. As a company in the utility industry, PGE has been serving Oregon customers with stable and safe electricity for more than 125 years. PGE is leading Oregon’s utility industry by being the leader in innovative energy solutions. Overall, due to the dramatic population growth in Oregon, especially in Portland Metropolitan area. And the high dividend payout ratio in this low-interest rate market and its strong social responsibility we believe that PGE, a company devoting itself to energy innovation and enhancements, will be a stable and reliable investment for the long-term.

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Gross Domestic Product

Gross Domestic Product (GDP) represents economic production and growth in the economy, serving as a primary indicator for investors driving future perspectives. Electricity demand and GDP are historically linked to one another, as the economy flourishes electricity consumption increases: electricity is needed to produce the vast majority of goods and services. Real GDP in Q2 2016 was 1.4% with advanced estimates indicating an increase in Q3 to 2.9%, strongest since Q3 201421. This boost reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending and nonresidential fixed investment. This best quarterly advance in two years is regarded as a positive step towards economic recovery. Our prediction is that consumer spending will lead GDP growth at 2.5% over the next year with favorable momentum in Q4 2016. This situation which is modest but consistent growth fuels our optimistic outlook even amongst all the uncertainty of the presidential outcome and its effects on the financial markets. The correlation between electrical utilities and GDP is subject to changes in seasonal weather variations and underlying trends. Portland Oregon's regional attributed GDP mirrors the estimated GDP growth of 2.5%. The graph before illustrates changes in GDP for the last four years