Hennessy Advisors, Inc. is a fast-growing publicly traded investment firm that manages a set of formula-driven mutual funds called the Hennessy Funds. It is headed by Neil Hennessy, a multi-year lister at Barron’s Top 100 Managers. In October 2012, the Novato-based firm successfully acquired ten investment funds formerly managed by FBR Funds. This move has increased its assets under management by 287% and fully diluted earnings per share by an outstanding 333-percent rise at the end of December 2012.
Hennessy went on a buying spree of energy infrastructure stocks in the latest quarter. In fact, the top 5 companies in its portfolio are all pipeline stocks. Let us take a look at these biggest buys of Hennessy Advisors. These are Williams Companies, Inc. (NYSE:WMB), Kinder Morgan Inc (NYSE:KMI), Enbridge Inc (USA) (NYSE:ENB)., Spectra Energy Corp. (NYSE:SE), and TransCanada Corporation (USA) (NYSE:TRP).. I analyzed each of these stocks from a fundamental perspective to see if they are worth the attention they get from Hennessy Advisors.
Source: Whalewisdom.com and Finviz.com, as of Jan. 18, 2013
Williams Companies has just been reiterated by TheStreet Ratings as a buy, with a B- score. The Oklahoma-based company, which operates a combined 26,000 miles of energy-related pipelines, recently announced a higher dividend payment to be paid in March this year. This is in line with the company’s plan to raise the payout every quarter.
Hennessy bought 1,093,892 new shares of this $23.4-billion company in the fourth quarter. The Williams stake tops the firm’s portfolio at 2.06%. It has been a great year for the company. Its EPS grew almost eight-fold this year, and in the next 5 years investors can also look forward to roughly 12 percent annual growth in EPS. WMB lures investors for being a shareholder-friendly corporation, as shown by its yield of 3.74%. In fact, it has an outstanding dividend record. Within the last two years, annualized dividend ballooned by an average annual growth rate of 45%, and roughly 21% in the last 6 years. It’s very easy to get attracted to such performance. However, what I worry about is the debt level. The quarterly debt-equity ratio of 1.588 for Q3 in 2012 was 44% higher than that for the same quarter in 2011. The latest data on its long-term debt-equity ratio (mrq) is 3.08. At this level, there has to be significant positive movements in its revenues soon for me to feel that the company can sustain its dividend growth in the long term.
Kinder Morgan, Inc., the Houston-based energy transportation and storage assets company, has recently announced a higher cash dividend of $0.37 per share to be paid in February. This payout marks a 19 percent increase from that of the fourth quarter in 2011. Like WMB, KMI enjoyed significant growth in 2012 as well. Its earnings per share tripled this year, growing by 238.13%, based on Finviz.com. This is attributed to a strong performance of Kinder Morgan Energy Partners, L.P. (KMP), and contributions from KMI’s transaction with El Paso Corp. and El Paso Pipeline Partners, L.P. Expectations for the future are high as well; EPS is estimated to grow by an outstanding 60% next year. Moreover, KMI has lower debt levels than before. The debt-equity ratio for the end of December 2012 was down by about 43% from the same period a year ago. With these, a double-digit margin, and high dividend yield, I do not doubt Hennessy for buying over 1.011 million shares of KMI in the latest quarter.