LG Investment Analysis Report & Stock Research, Laclede Group, Inc.

Ockham's Rating/Recommendation Summary

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LG Revenue

Cash earnings is the most important factor in our analysis, but it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, LG the high and low end of the Price to Sales per share ratios are 0.52x and 0.36x respectively.

Notice that LG's current Price to Sales per share ratio is 0.41x, which is somewhat below its historical weighted average by 7%. Given this level of sales per share, we suggest a neutral share price forecast. To the extent there is a further drop in the Price to Sales ratio from current levels, which would occur through some combination of increased sales per share or a decline in share price, we would only become more positive about the Price to Sales ratio outlook.

LG 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 LG is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for LG, the current level of Cash Earnings compared to its historical levels helps identify where LG is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 10.44 and a historical low Cash Earnings per share ratio of 7.26, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for LG? From the Ockham perspective, we are looking specifically at LG to see if the market is recognizing the huge disparity between LG's past stock price to Cash Earnings ratio to today's levels. At a difference of 35% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at LG. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

LG Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely.

When reviewing dividend yields for LG, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. LG’s estimated annual dividend is $1.58 resulting in a current dividend yield of 5.02%. The highest dividend yield from LG over recent history was 7.05% while the lowest dividend yield was 2.76%. A current dividend yield of 2.34% above the historical median is favorable in our analysis of LG.