Chesapeake Utilities Corp (CPK, Financial) stock experienced a daily loss of 4.36% and a three-month loss of 16.67%. The company's Earnings Per Share (EPS) (EPS) stands at 4.95. But the question remains, is the stock modestly undervalued? This article presents a valuation analysis of Chesapeake Utilities (CPK) to answer this question. Read on for a comprehensive review.
Company Overview
Chesapeake Utilities Corp is a diversified energy delivery company. The company is engaged in natural gas transmission and distribution, electricity generation and distribution, propane gas distribution, mobile compressed natural gas utility services, and other businesses. Chesapeake Utilities operates in two reportable segments, Regulated Energy and Unregulated Energy, subject to regulations by respective Public Service Commissions (PSC) and the Federal Energy Regulatory Commission (FERC).
Chesapeake Utilities' stock price stands at $101.28, while the GF Value, an estimation of fair value, is $136.75. This comparison suggests that the stock might be modestly undervalued. The following sections provide a detailed analysis of the company's value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
Chesapeake Utilities appears to be modestly undervalued based on the GF Value calculation. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. With a market cap of $1.80 billion, Chesapeake Utilities seems to be modestly undervalued at its current price of $101.28 per share.
As Chesapeake Utilities is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company.
Chesapeake Utilities has a cash-to-debt ratio of 0.01, which is worse than 95.26% of 485 companies in the Utilities - Regulated industry. GuruFocus ranks the overall financial strength of Chesapeake Utilities at 4 out of 10, which indicates that the financial strength of Chesapeake Utilities is poor.
Profitability and Growth
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Chesapeake Utilities has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $672.10 million and Earnings Per Share (EPS) of $4.95. Its operating margin is 21.55%, which ranks better than 74.11% of 506 companies in the Utilities - Regulated industry. Overall, GuruFocus ranks the profitability of Chesapeake Utilities at 7 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Chesapeake Utilities is 9.5%, which ranks better than 57% of 486 companies in the Utilities - Regulated industry. The 3-year average EBITDA growth rate is 8.6%, which ranks better than 64.49% of 459 companies in the Utilities - Regulated industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Chesapeake Utilities's ROIC was 4.77, while its WACC came in at 6.76.
Conclusion
Overall, Chesapeake Utilities (CPK, Financial) stock appears to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks better than 64.49% of 459 companies in the Utilities - Regulated industry. To learn more about Chesapeake Utilities stock, you can check out its 30-Year Financials here.
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