About National Grid
At any given moment there is a lot to be said and that is said about energy companies in the United States.
While the term “energy company” automatically lends itself a rather broad lens, as some perceive an energy company to be solely an oil and gas company such as ExxonMobil, Chevron, Shell or any other company that has some form or variation of upstream, midstream and/or downstream operations under its corporate umbrella, sometimes people consider energy companies to be entities focused on manufacturing, selling and distributing utility-type products and services such as electricity and natural gas that is commonly relied upon and used to power homes and other complexes.
United Kingdom-headquartered National Grid plc is the latter, as it is one of the world’s largest suppliers of natural gas and electricity, serving millions upon millions of folks in the northeastern corridor of the United States (namely in and around New York, Massachusetts, New Hampshire, Rhode Island and Vermont) as well as what can perhaps be viewed as its core market, spread out across the United Kingdom.
In more senses than one, National Grid is just some regular old company and stock, however, it is different from most of the companies we’ve analyzed before in the sense that it is essentially a (highly) regulated monopoly, as most utilities are, which isn’t much of a bad thing for investors as utilities are especially well known for being largely recession proof given the nature of the products and services they sell (i.e., one of the last things someone is going to cut back on is electricity and/or the natural gas that powers many of the appliances and critical equipment within one’s abode).
Energy in this context doesn’t tend to fluctuate all that much, which typically makes for a boring stock but as the national and global economies remain in a quasi-recessionary state, more and more are likely to cling onto proven, established, “boring” companies such as National Grid given the consistency of the business it runs, not to mention that in many respects it is likely favored by the governments and other authorities it is monitored by, which could prove to be a resounding positive if and/or when problems arise or the company is looking to expand its operations and perhaps subsidize some of the related costs of said operations and new projects.
We also appreciate the fact that this company has some geographical diversity with significant operations in both Europe and certain segments of North America.
Ultimately, it might prove to be rather advantageous to get a glimpse into this company and its finances so as to determine whether or not National Grid’s stock (NYSE: NGG) is a solid investment contender for your portfolio.
Enter our guest for this evening, National Grid plc.
National Grid’s stock financials
At the time of this writing National Grid plc is a $48.59 billion company trading a share price of $67.88 while holding a price-to-earnings (P/E) ratio of 14.75 and also while issuing an annual dividend of $3.38 to its shareholder audience.
Maintaining a share price that is seemingly undervalued relative to its actual, intrinsic worth (given that its price-to-earnings ratio is trading at less than the fair value benchmark of 20) isn’t the worst thing in the world and it is also nice that the company dishes out a pretty generous dividend of nearly four dollars per annum to its shareholders.
In attempting to gain a clearer picture of National Grid plc it can also be noted that the company’s executives are in charge of approximately $92.7 billion in terms of total assets along with around $63.2 billion in terms of total liabilities which, to us, is a great overall blend between what it owns and what it owes, as given the sheer scale of the company and its global operations it was always bound to have its fair share of total liabilities and outstanding debts but one can certainly rest assured knowing that its total assets outweigh said debt(s) by a more than comforting margin.
As it relates to the state of the company’s income statement, National Grid’s total annual revenues between 2019 and 2021 were just about as boring as expected, floating around $14 billion each year, however, in the years that followed the company’s revenues inched up somewhat dramatically.
For instance, the company’s total annual revenue inched up to $18.2 billion in 2022 and furthermore up to its latest reported figure (displayed on TD Ameritrade’s platform) of $21.6 billion in 2023.
This recent growth in total annual revenues could be attributed to a few different things including the company continuing to expand its natural gas and electric footprint across the regions it already serves as well as it entering new regions and other untapped markets and/or the company raising its prices across the board due to heightened expenses it has incurred due to supply chain-related complications or maybe lingering COVID-19 impacts hurting its business overseas.
Whatever the reason may be, this company does have some pricing power and we wouldn’t be all too surprised to find that it was flexing it in recent years and today.
With respect to the company’s cash flow statement, National Grid’s net income and total cash from operations have been as solid as it comes, standing both consistent (in some years even growing, interestingly) and positive each year since 2019 as well, which is also a likely byproduct of being a large, powerful, regulated monopoly.
National Grid’s stock fundamentals
Yet another byproduct of being a regulated monopoly just happens to be the rather innate ability to generate a greater trailing twelve month (TTM) net profit margin than that of its peers, on average.
National Grid plc has been able to do just that.
Specifically, according to the figures displayed on TD Ameritrade’s platform, National Grid plc’s TTM net profit margin is pegged at 12.53% to the industry’s listed respective average of 11.08%, which makes a lot of sense given that the companies that qualify as regulated monopolies in the utilities space are far and few, thus making it a competitive ecosystem to operate within.
Nevertheless, it is great that the company in question has been able to eke out a TTM net profit margin better than the average of the competition.
Additionally, the company’s listed TTM returns on both assets and investment(s) are both ever so slightly better than the industry’s respective averages as well, with, as an example, its TTM return on assets sitting at 2.89% to the industry’s relative average of 2.65%.
This alone indicates that National Grid plc is doing a slightly better job at being more efficient with its capital and subsequently turning out a stronger profit through its assets than its competitors.
Obviously, this is a plus.
Should you buy National Grid stock?
We’ll give it to you straight, as we always like to do.
There’s a lot to like about National Grid plc, its core financials and other metrics, its stock, its business model and its operations.
With consistency and dependability being some of the key traits that describe this company’s operations as a whole, it sure wouldn’t make all that much sense to ponder purchasing shares of its stock (NYSE: NGG) at a premium.
Thankfully, it doesn’t seem like one has to do that at the moment.
Given the company’s current valuation (specifically referencing its prevailing price-to-earnings ratio) one just might be able to be a part owner of a utility giant at a modest discount, however, like anything in life, hardly anything is guaranteed and it is always crucial that one performs their own due diligence and consider their own personal financial situation when considering investing in even the most “reliable” companies, as even the utilities sector has experienced and endured their fair share of volatility in recent years, even though it isn’t all that common.
All of this being said, we still think it is appropriate to render this company’s stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.