Always looking for opportunities in the electric utility sector, it would be foolish to overlook Evergy, Inc. (EVRG) at current prices.
In essence, the utility is a “plain vanilla” electric utility with operations in Kansas and Missouri. Nothing fancy, it generates, transmits, and distributes electricity to approximately 1.6 million customers.
The company pays a dividend of $2.02, which at its current price translates into a 3.7% yield. Not the highest and not the lowest in the utility sector.
What makes the stock intriguing is its recent runup and then descent based on speculation that it could be sold along with its transformational plan for the future.
Back in May, the Kansas City Business Journal reported that
Evergy (NYSE: EVRG) said it would conduct a two-pronged review process as part of its deal with Elliott Management Corp. The review aims to find ways to improve Evergy’s operations.
As part of the review, Evergy will launch a full sales process in June. Potential buyers include NextEra Energy Inc., WEC Energy Group Inc., CMS Energy Corp., Ameren Corp. and American Electric Power Co., people familiar with the matter told Bloomberg.
There is no guarantee that any of the potential buyers would follow through or that the company would sell.”
Now we know that Evergy and Elliott Management Corp. have agreed that the company will stay independent.
The possibility of a sale drove the price of the utility up from a March low of $42.01 to a July high of nearly $65.
Then the announcement of the utility’s plan to remain independent caused the stock to drop around 17% to its present $52-54 range.
Over the past 30 days, stock prices in the utility sector have seen an average rise of 3%, while Evergy’s stock has fallen 14%.
Now that the short-term traders have abandoned the stock, longer-term investors have an opportunity to acquire a company committed to the future.
Evergy has published a Sustainability Transformation Plan (STP) that it has developed in lieu of being sold to another utility.
But the real story is more long term. With Elliott Management remaining as a major shareholder, Evergy has committed to:
- Improving its EPS CAGR
- Increasing its investment in renewable energy
- Reducing its non-fuel O&M by 25%
- No equity needs through 2024
Is there a downside?
Any investment story has more than one side.
In Evergy’s case, much of its commitment is dependent on favorable regulatory treatment by its state regulators.
There is also a trust that Elliott Management will stick with the utility and keep management focused on its promises.
Now that disappointed short-term traders have left the stock, Evergy is a potential buy for the patient investor.
Buying the stock at the present price makes three assumptions:
- Evergy will honor its STP
- Elliott Management will continue to invest and oversee the transformation
- Investors are willing to hang on through any general decline in utility stock prices that might affect the whole sector, and therefore Evergy’s stock price as well.
If those three factors can be met, Evergy investors can have a bright future.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EVRG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.