GAS Investment Analysis Report & Stock Research, NICOR, Inc.

Ockham's Rating/Recommendation Summary

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GAS Revenue

As a value investing shop, we are interested in seeing how GAS's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 0.68x and the low end of the range at 0.46x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for GAS of 0.61x is slightly above its historical average. This level of Price to Sales gives us a fairly neutral position on the shares. We would like to see a drop in the Price to Sales ratio of 6% given current sales figures before we would become more positive on a Price to Sales basis. Such a drop would put Price to Sales per share in line with GAS's weighted historical average.

GAS Cash Earnings

As the old saying goes, "Cash is King!" We look at reported Cash Earnings, but the main emphasis of our analysis involves stripping out non-cash events such as depreciation from our cash earnings analysis. This helps us view the cash flows more clearly. Nevertheless, an analysis of Cash Earnings (both reported and otherwise) is absolutely pivotal to assessing a company's value, and currently GAS is below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for GAS to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 7.10 and a 4.89 low over the same period.

With a historical average Cash Earnings ratio of 5.99, the current Cash Earnings ratio of 5.50 is a positive opportunity for value in the Ockham view. Naturally, we would love to see a deeper value opportunity for GAS, but to get there one of two things must occur (or both). Either the stock price must decline further to increase the long term buying opportunity, or the management at GAS needs to earn more cash. If either, or both, of these occur, then we could see a significant gap emerge between what investors were willing to pay for in the past, and where GAS is trading currently (latest close price of $39.13).

GAS Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from GAS against the historic high and low levels over an available data range. Because GAS has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In GAS’s case, the estimated annual dividend is $1.86 producing a current dividend yield of 4.75%. The highest dividend yield from GAS in recent history was 9.43% while the lowest dividend yield was 3.48%. It is never a good sign for a company to pay significantly lower dividends, in this case 26.41% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as a negative factor.