Though not quite as impressive as the SRCL monthly chart that I laid out on Tuesday, ITC sports a very consistent uptrend as well. ITC is another rarely-mentioned company that has been a big, steady winner ever since its IPO. The stock has quadrupled since its IPO in July 2005, and in a relatively straight line, especially since its March 2009 low:
ITC is one of those crucial industrial businesses that is out of sight in a modern economy. It manages the electricity transmission lines that ensure smooth electricity distribution between major power plants and local electricity distribution stations. The company is highly regulated by the Federal Energy Regulatory Commission (FERC), since ITC is a crucial cog in a system that keeps the lights on and the computers running throughout the Midwest, where it primarily operates.
The stock is down almost 10% this week, with the largest move lower on Wednesday (5.8%) on the stock’s largest volume day in more than a year. The news catalyst on Wednesday was a filing by industrial power customers from Illinois, Indiana, Minnesota, and Wisconsin with the FERC, asking the commission to reduce the return on equity for transmission lines from 12.83% to 9.15%.
If such a cut were implemented, ITC’s future revenues and earnings would of course be affected. This recent customer campaign’s final impact is still up in the air, but certain long-time investors have likely decided to exit after such a nice run.
The company’s valuation, even after the multi-year advance, is only 20x earnings, for a company that is expected to grow earnings at 15-20% per year over the next few years. The company has grown earnings between 10 and 25% for the past 5 years. However, if the FERC does decide to reduce the ROE for transmission lines, those expected growth rates might be too optimistic.
Nonetheless, I’m watching the 200 day ma on the daily chart:
The stock has not traded below that level since September 2012. Buyers might be snooping around there for a $5 billion company with a steady, regulated earnings stream and a history of strong execution and earnings consistency.