Unitil (NYSE:UTL) Strong Profits May Be Masking Some Underlying Issues
Unitil Corporation's (NYSE:UTL) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Unitil expanded the number of shares on issue by 11% over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Unitil's EPS by clicking here.
How Is Dilution Impacting Unitil's Earnings Per Share (EPS)?
Unitil has improved its profit over the last three years, with an annualized gain of 13% in that time. While we did see a very small decrease, net profit was basically flat over the last year. Meanwhile, EPS was actually down a full 2.2% over the period, highlighting just how different the profits look from a per-share perspective. Therefore, the dilution is having a noteworthy influence on shareholder returns.
If Unitil's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On Unitil's Profit Performance
Unitil issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Unitil's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 10.0% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 2 warning signs for Unitil (1 is significant!) and we strongly recommend you look at these before investing.
Today we've zoomed in on a single data point to better understand the nature of Unitil's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.