CANADIAN UTILITIES LTD. - Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37

CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37; Income Portfolio, Utilities sector; Shares outstanding: 264.5 million; Market cap: $9.8 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.canadian utilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company.

Canadian Utilities plans to spend $5.8 billion on upgrades between 2015 and 2017. It will devote $5.1 billion of that to its regulated operations, including $1.2 billion to make Alberta’s power grid more reliable.

The remaining $700 million will go to unregulated businesses, including $500 million for new power lines in the Fort McMurray area. The company owns 80% of a joint venture that will build this project. Quanta Services (New York symbol PWR) will own the remaining 20%. Meanwhile, Canadian Utilities earned $174 million, or $0.61 a share, in the three months ended March 31, 2015.

That’s down 21.3% from $221 million, or $0.80, a year earlier. The drop mainly stems from a regulatory decision that said Canadian Utilities overcharged customers in 2013 and 2014. That cut earnings by $36 million in the latest quarter.

Revenue fell 9.7%, to $918 million from $1.1 billion, mainly due to lower electricity rates at Canadian Utilities’ unregulated power plants.

Lower power demand and rates in Alberta will probably cut the company’s 2015 earnings by 12.3% from 2014, to $2.21 a share. The stock trades at 16.7 times that estimate. It also trades at 6.3 times its likely cash flow of $5.90 a share.

New projects in Saskatchewan and Mexico could raise Canadian Utilities’ earnings to $2.45 a share in 2016, and the stock trades at an attractive 15.1 times that forecast. The $1.18 dividend yields 3.2%. The class A non-voting shares are more liquid than the class B voting shares.

Canadian Utilities class A stock is a buy.

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