June 3, 2009 - NSTAR (NST-NYSE) through its subsidiaries, engages in the distribution, transmission, and sale of energy in Massachusetts. The company supplies electricity at retail in the City of Boston and 80 surrounding cities and towns, such as Cambridge, New Bedford, Plymouth, and the geographic area comprising Cape Cod and Martha's Vineyard.

The company also engages in district energy operations, telecommunications, and a liquefied natural gas service. The district energy operations include sale of chilled water, steam, and electricity to hospitals, teaching, and research facilities locatedin Boston's Longwood Medical Area.

The telecommunications services comprise installation, ownership, operation, and maintenance of a wholesale transport network for other telecommunications service providers in the metropolitan Boston area to deliver voice, video, data, and Internet services to customers.

As of December 31, 2008, it served approximately 1.4 million customers, including approximately 1.1 million electric distribution customers in 81 communities andapproximately 300,000 natural gas distribution customers in 51communities. The company was founded in 1886 and is based in Boston, Massachusetts.

NSTAR saw revenues dip from 2006 to 2007, going from $3.5777 billion to $3.2619 billion. But they started up again in 2008, going to $3.3454 billion. This year, analysts see $3.55 billion, then $3.75 billion in 2010.

Earnings, however, never saw a decrease. In 2006, they were $1.93, then $2.07, followed by $2.22. This year, analysts think the year will finish at $2.40, then hit $2.55 next year. The improvements are small but notable given that most companies are reporting ever lower revenues and earnings in most industries. Management forecast for 2009 has a range between $2.33 and $2.43 and has stated a goal of 6% to 8% annual increase in earnings.

Part of the confidence analysts have in the earnings is a new regulatory agreement that lasts until 2012 that allows for NSTAR to raise rates each year and a rather high return on equity of 12.5%. Furthermore, the company has demonstrated a more efficient operating and maintenance program, growing margins. Management predicted a 2% decrease in operating and maintenance costs for 2009.

There's a new project NSTAR wants to start: a new transmission line, with a partner, to Quebec. NSTAR owns 25% of the planned project, requiring it to invest as much as $200 million. The project still needs Federal Energy Regulatory Commission approval. That should be forthcoming very soon. Then other regulatory approvals are needed so most likely nothing will happen before 2011.

One of the positives about NSTAR is its strong cash flow. It exceeds all capital expenditures and dividend payments. The balance sheet is very strong and includes over $300 million of securitized bonds. The company earns 3.4 times its annual interest payments. Dividends have increased for years. Starting in 2005, they were $1.16 a share, then raised to $1.21, follwed by $1.30, then $1.40. They are scheduled to be $1.50 this year, giving the stock a yield of 5%.

More numbers: Market cap is $3.21 billion. Forward P/E is 12. Price to Book is 1.75. Book value is $16.95. Operating margin for the last 12 months was 13.53% and Profit margin was 4.21%. Total debt is $2.95 billion. The 52 week high was $40, reached on September 19, 2008. The 52 week low was only 3 weeks later, at $25.67 on October 10. There are 106.81 million shares outstanding with a float of 103.49 million.

NSTAR has a lot of good going. Investors took note and bought the stock (about 50% of the stock is held by institutions). The dividend is solid and increases every year. The regulatory approval for rate hikes is done for the next 3 years. A new project will most likely commence within 2 years, broadening NSTAR's market. This is a stock that should appeal to quite a few investors, after they've done more homework. Check this one out if you're looking for income that is relatively safe.

Company Web site: http://www.nstar.com/

- Ted Allrich