By William Trent, CFA of Stock Market Beat
Most advisors recommend some exposure to utilities for the dividend and earnings stability they tend to offer in a portfolio. However, the earnings report from Large Cap Watch List member PG&E CORP (PCG) shows they have potential for earnings surprises and capital gains as well.
§ Year-end net income was $991 million, compared with $917 million in 2005.§ Earnings from operations for 2006 were $2.57 per share, compared with $2.34 for 2005.
§ The company is increasing guidance for 2007 earnings from operations by $0.05 per share to a range of $2.70-$2.80 per share.
Consensus estimates were for $2.54 in 2006 and $2.72 in 2007. The year-over-year increase in earnings per share predominantly reflects the positive effects of share repurchases in 2005, which resulted in fewer shares outstanding in 2006. The shares are up half a percent in a flat market on the news, in addition to offering the aforementioned dividend yield of nearly 3%.
The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Plantronics (PLT) put options
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