On May 27, 2014, the shares of Chesapeake Utilities Corporation (CPK) hit a 52-week high of $66.48. Finally, the share price was closed at $65.88, up around 1.3% from Friday’s closing. The company’s strong cash position backed by efficient cash generation capacity, steady organic as well as inorganic growth initiatives and positive outcomes from those ventures has led to the surge in share price. In addition, Chesapeake Utilities’ frequent revision of quarterly dividend rate is also appreciable. We believe these catalysts will likely enhance the company’s future performance.
Chesapeake Utilities attempts to maintain a stable liquidity position to keep its financial profile stable. The cash balance as of Mar 31, 2014 was $4,791 million, up 42.8% from $3,356 million as of Dec 31, 2013. During first-quarter 2014, the company’s operating cash flow surged 30.7% to around $46 million from $35.2 million in the prior-year comparable period. A strong financial position will help Chesapeake Utilities to meet its future capital requirements for growth projects.
Past records show that Chesapeake Utilities strongly follows disciplined capital investments for organic growth projects, acquisitions and improvement of efficiencies. In the first quarter, the company invested around $18.5 million as property, plant and equipment expenditures. In 2014, Chesapeake Utilities plans to spend $110.9 million. Of which, a major portion is expected to be utilized for regulated operations in natural gas distribution and transmission, and electricity distribution projects.
Prior investments in acquisitions and internal ventures are contributing to Chesapeake Utilities’ financials. In 2013, the company completed several acquisitions, including Eastern Shore Gas Company (“ESG”), some operating assets of the City of Fort Meade, Florida and propane operating assets of Glades. In the first quarter, the acquisitions of ESG and the assets of Glades contributed $4.3 million and around $0.15 million, respectively to gross margin. In addition, the company’s service expansion projects generated additional gross margin of $3 million. Contribution from growth projects will encourage Chesapeake Utilities to investment more on profitable ventures, thereby providing uninterrupted service to its customers and meet increasing demand.
Apart from investing in several projects, Chesapeake Utilities’ liquidity also enables it to pay regular dividend and raise the same frequently. On May 6, 2014, the board of directors announced that the company will pay a quarterly dividend of 40.5 cents, up 5.2% from the previous payout. We believe the company’s practice of returning wealth to shareholders will keep alive investor interest in the stock.
Chesapeake Utilities currently has a Zacks Rank #2 (Buy). Other stocks in the industry looking equally good are New Jersey Resources Corporation (NJR), Atmos Energy Corporation (ATO) and UGI Corporation (UGI). While New Jersey Resources holds a Zacks Rank #1 (Strong Buy), Atmos Energy and UGI Corporation carry a Zacks Rank #2 (Buy).
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