On Thursday, Scotiabank initiated coverage on TXNM Energy (NYSE: TXNM), assigning a Sector Perform rating and setting a price target of $46.00 for the company's shares. The firm highlighted the potential for a regulatory turnaround in New Mexico and meaningful upside to capital expenditure in Texas. However, the analyst noted the regulatory environments in both states carry above-average risk.
The report pointed out that TXNM Energy's balance sheet is not considered top-tier but acknowledged a path to improvement. The valuation was deemed reasonable, with the company's price-to-earnings (P/E) ratio at a roughly 10% discount to the median of Scotiabank's coverage universe, aligning with its small cap peers. Despite the potential for growth, the analyst cited below-average near-term earnings per share (EPS) growth, alongside peer-average long-term EPS and dividend growth.
Scotiabank's price target for TXNM Energy is based on a 5% discount to the sector anchor multiple of 16 times, applied to the firm's 2026 EPS forecast of $3.02. This target implies a 10% total return, including the dividend yield. The analyst's comments suggest a cautious stance due to the regulatory and headline risks present in the states where TXNM Energy operates.
The firm recognized the appeal of TXNM Energy as a pure-play, two-state, all-electric regulated utility holding company. However, the firm expressed a preference for more consistent and defensive risk-adjusted growth opportunities, given their risk-averse nature and the uneven trajectory of historical and anticipated earnings growth. The analyst's statement reflects a balanced view, acknowledging both the positive near-term catalysts and the challenges ahead.
In other recent news, TXNM Energy reported second quarter 2024 earnings per share at $0.60, confirming its guidance range of $2.65 to $2.75 per share for the year. The company also announced a robust infrastructure investment plan in Texas and New Mexico, estimated at $600 million. After an unsuccessful merger attempt with Avangrid (NYSE:AGR), Jefferies initiated coverage on TXNM Energy shares with a Buy rating, citing the company's growth potential despite regulatory challenges.
Changes in executive compensation were also reported, with increases for Joseph D. Tarry and Elisabeth A. Eden. In addition, the company declared a quarterly dividend of $0.3875 per share. TXNM Energy also announced the retirement of its CFO, Elisabeth A. Eden, no sooner than March 15, 2025, and the appointment of Brian G. Iverson as the new General Counsel.
InvestingPro Insights
Adding to Scotiabank's analysis, InvestingPro data provides further context on TXNM Energy's financial position and market performance. The company's P/E ratio of 46.01 and adjusted P/E ratio of 62.19 for the last twelve months as of Q2 2024 suggest a premium valuation, aligning with Scotiabank's observation of a reasonable valuation relative to peers. This high earnings multiple is reflected in one of the InvestingPro Tips, which notes that TXNM is "Trading at a high earnings multiple."
Despite the regulatory challenges mentioned in the article, TXNM Energy has demonstrated commitment to shareholder returns. An InvestingPro Tip highlights that the company "Has raised its dividend for 13 consecutive years" and "Has maintained dividend payments for 29 consecutive years." This is supported by the current dividend yield of 3.6% and a dividend growth rate of 5.44% over the last twelve months.
The company's revenue for the last twelve months as of Q2 2024 stands at $1,842.94 million, with a gross profit margin of 53.09%. While these figures provide a snapshot of TXNM's financial performance, another InvestingPro Tip indicates that "Net income is expected to grow this year," which could potentially improve the company's valuation metrics going forward.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for TXNM Energy, providing a deeper dive into the company's financial health and market position.
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