Top picks from S&P: ITC

The electricity transmission company should see double-digit growth in revenues over the next two years.

By TheStockAdvisors May 24, 2013 4:10PM
Worker climbing electricity pylons copyright Digital Vision., Photodisc, Getty Images(This post is part of a special report featuring 7 Top Picks from S&P Capital IQ.)

By Christopher Muir, S&P Capital IQ, The Outlook
Sector: Utilities

ITC (ITC) is the first independently owned and operated electricity transmission company in the U.S. As of December 31, 2012, ITC owned 15,190 circuit miles of transmission lines in Michigan, Iowa and other states.

Unlike most regulated electric utilities, ITC owns the high-voltage power line networks that transmit electricity from generating stations to low-voltage, local distribution networks, but not the generators or distribution systems.

We estimate revenue will rise by 14% in 2013 and 15% in 2014, helped by a growing rate base and new projects entering service.

ITC is waiting for regulatory approval for its December, 2011 proposed acquisition of 15,400 miles of transmission lines in Arkansas, Louisiana, Mississippi and Texas from Entergy (ETR).

The proposed deal would give Entergy shareholders 50.1% of the merged company in a stock-for-stock deal. There is some risk that regulators will not approve the deal, but ITC has convinced other regulators in the past. We believe the deal will close by the end of the third quarter of 2013.

On a standalone basis, we see ITC's stock as being attractive with 15% to 17% EPS growth expected over the next five years. Factoring in the benefits from the proposed acquisition, including a $13.50 per share special dividend, the stock price looks even more compelling to us.

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