An analysis of Laclede Group, Inc. stock must begin with a crucial clarification: The Laclede Group, Inc. is no longer its active corporate name or ticker symbol.
In April 2016, The Laclede Group, Inc. (formerly NYSE: LG) officially changed its holding company name to Spire Inc., and its common stock began trading under the new ticker symbol SR on the New York Stock Exchange. The analysis below, therefore, focuses on Spire Inc. (SR), which is the current entity that encompasses the former Laclede Group's operations.
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| Fundamental Analysis of Spire Inc. (Formerly The Laclede Group, Inc.) |
Fundamental Analysis of Spire Inc. (Formerly The Laclede Group, Inc.)
Spire Inc. (NYSE: SR) is a diversified utility holding company primarily engaged in the purchase, retail distribution, and sale of natural gas. As a regulated utility, its fundamental profile is characterized by stability, predictable cash flows, and dividend reliability, making it a typical investment for income-focused or defensive portfolios.
Business Profile and Operational Segments
Spire's business model is centered on its core utility operations, which provide a significant base of stable earnings. The company operates through three main segments:
Gas Utility: This is the primary revenue and earnings driver. It consists of regulated natural gas distribution operations across the states of Missouri and Alabama. The company serves approximately 1.7 million customers, making it one of the largest publicly traded natural gas companies in the U.S. This segment is considered low-risk due to the exclusive service territories and the stability provided by rate regulation.
Gas Marketing: This non-regulated segment, primarily operated by Spire's subsidiary, Laclede Energy Resources, Inc., involves the wholesale and retail marketing of natural gas and related services. While contributing to revenue, this segment introduces a higher degree of volatility due to commodity price fluctuations.
Midstream: This segment includes the transportation and storage of natural gas, supporting both its own utility operations and third parties. This infrastructure is essential for reliable service delivery and enhances the company's control over its supply chain.
Industry and Regulatory Environment
As a regulated utility, Spire's profitability is heavily influenced by state-level Public Service Commissions (PSCs) in Missouri and Alabama.
Rate Base Growth: A key fundamental driver for utilities like Spire is the ability to invest capital in infrastructure improvements (like pipeline upgrades) and earn a regulated rate of return on that investment (the rate base). Spire has consistently pursued infrastructure modernization programs, which are essential for driving predictable earnings growth.
Decoupling and Rider Mechanisms: Spire's financial stability is supported by regulatory mechanisms, such as decoupling (separating utility distribution revenue from changes in customer usage) and rider mechanisms (allowing for the timely recovery of certain costs like infrastructure spending and purchased gas costs). These mechanisms reduce business risk, especially from weather variations and commodity price volatility.
Financial Performance and Stability
Fundamental analysis of a utility often focuses on the stability of earnings and cash flow, rather than rapid growth.
Revenue and Earnings Quality
The majority of Spire's revenue is derived from its Gas Utility segment, providing a high-quality, recurrent revenue base.
Earnings per Share (EPS): Spire typically reports both GAAP EPS and a non-GAAP measure called "Net Economic Earnings," which excludes the impact of market price changes on their commodity hedging activities. For investors, the Net Economic Earnings figure often provides a clearer picture of the core, recurring profitability of the utility business.
Operating Margin: Utility operations tend to have stable, predictable operating margins due to the regulated cost-plus nature of their business. Management's effectiveness is often measured by its ability to manage operating expenses and secure favorable rate case outcomes.
Balance Sheet and Credit Rating
A strong balance sheet is crucial for a utility, given the high capital expenditure requirements for maintenance and expansion.
Debt: Utilities generally carry a significant amount of debt to finance their large, long-life assets. For a company like Spire, the focus is on the cost of debt and its coverage ratios. Rating agencies like S&P and Moody's historically rate the utility portion of the business highly (often in the 'A' or 'BBB+' range), reflecting the low-risk profile of the cash flows.
Interest Coverage Ratio: This metric measures the company's ability to cover its debt interest payments with its operating earnings (EBIT). A consistently high interest coverage ratio (typically above
for a utility) indicates a healthy ability to manage debt obligations.Capital Structure: Spire funds its growth through a mix of debt and equity. The regulatory framework typically allows for a set capital structure (e.g.,
debt to equity), which the company aims to maintain.
Dividend Policy and Valuation
Utilities are often valued as income-generating assets, making their dividend policy a critical fundamental element.
Dividend and Shareholder Return
Dividend Reliability: Spire, tracing its history through Laclede Gas, boasts one of the most remarkable dividend records in the utility sector, having paid continuous dividends since 1946. This long history is a testament to the stability of its underlying regulated business.
Dividend Yield and Growth: Spire's stock typically offers a competitive dividend yield (recently around
), which attracts income investors. Furthermore, the company aims for modest but predictable annual dividend increases, driven by steady rate base growth.
Valuation Metrics
Utility valuation is distinct from high-growth sectors, relying heavily on stable earnings multiples.
| Metric | Spire Inc. (SR) Value (Approx.) | Utility Sector Context |
| Price-to-Earnings (P/E) Ratio | | Generally lower than the broader market, reflecting its lower growth rate, but can be slightly higher than peers based on growth prospects. |
| Price-to-Book (P/B) Ratio | | Typically trades at or above book value, as the utility assets (rate base) are considered reliable and generate stable earnings. |
| Dividend Yield | | A critical metric; a higher yield relative to peers can signal a better income opportunity, provided the dividend is secure. |
The stock is often considered fairly valued when it trades in line with its utility peers. Any significant discount might suggest regulatory concerns or perceived risk, while a high premium would signal strong projected growth in the rate base.
Conclusion
Spire Inc. (SR), the successor to The Laclede Group, Inc., is a fundamentally sound investment within the regulated natural gas utility sector. Its appeal rests on the stability of its earnings from its massive Gas Utility segment, a long and reliable history of dividend payments, and its commitment to prudent capital investment in its rate base.
For investors seeking defensive, income-oriented exposure, Spire represents a classic utility investment, offering modest, predictable total returns primarily driven by its dividend and regulated rate base growth, but it is not expected to deliver the high-growth returns of more volatile sectors.
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