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Otter Tail Corporation (OTTR) Soars to 52-Week High, Time to Cash Out?

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Have you been paying attention to shares of Otter Tail (OTTR - Free Report) ? Shares have been on the move with the stock up 18.2% over the past month. The stock hit a new 52-week high of $78.83 in the previous session. Otter Tail has gained 9.7% since the start of the year compared to the 2.5% move for the Zacks Utilities sector and the 2.9% return for the Zacks Utility - Electric Power industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on August 1, 2022, Otter Tail reported EPS of $2.05 versus consensus estimate of $1.27.

For the current fiscal year, Otter Tail is expected to post earnings of $5.37 per share on $1.37 billion in revenues. This represents a 26.95% change in EPS on a 14.58% change in revenues. For the next fiscal year, the company is expected to earn $3.81 per share on $1.31 billion in revenues. This represents a year-over-year change of -29.05% and -4.65%, respectively.

Valuation Metrics

Otter Tail may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Otter Tail has a Value Score of C. The stock's Growth and Momentum Scores are C and C, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 14.6X current fiscal year EPS estimates, which is not in-line with the peer industry average of 19X. On a trailing cash flow basis, the stock currently trades at 12.1X versus its peer group's average of 9.1X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Otter Tail currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Otter Tail fits the bill. Thus, it seems as though Otter Tail shares could still be poised for more gains ahead.

How Does OTTR Stack Up to the Competition?

Shares of OTTR have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is WEC Energy Group, Inc. (WEC - Free Report) . WEC has a Zacks Rank of # 2 (Buy) and a Value Score of D, a Growth Score of B, and a Momentum Score of C.

Earnings were strong last quarter. WEC Energy Group, Inc. beat our consensus estimate by 5.81%, and for the current fiscal year, WEC is expected to post earnings of $4.37 per share on revenue of $8.65 billion.

Shares of WEC Energy Group, Inc. have gained 4.9% over the past month, and currently trade at a forward P/E of 23.72X and a P/CF of 13.76X.

The Utility - Electric Power industry is in the top 33% of all the industries we have in our universe, so it looks like there are some nice tailwinds for OTTR and WEC, even beyond their own solid fundamental situation.


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