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Zacks Investment Research downgraded CPFL Energia S.A. (CPL - Snapshot Report) to a Zacks Rank #5 (Strong sell) on Aug 16, 2013.

Why the Downgrade?

CPFL Energia’s second quarter 2013 results were disappointing as the company reported net loss of R$134 million (US$65 million) compared with net earnings of R$246 million (US$126 million) in the year-ago quarter. Loss per ADR came in at 11 cents, down compared with 29 cents earnings reported in the year-ago quarter. Shares of CPFL Energia have dropped 11.4% since the company reported its results on Aug 14, 2013.

Revenue in local currency, for CPFL Energia increased 3.0% year over year due primarily to higher revenue generation from electricity sales to distributors and other operating sources. These were however partially offset by revenue declines in electricity sales to final customers and revenue from building the infrastructure.

Talking of expenses and margins, cost of electric energy services in the quarter represented 59.8% of total revenue, an increase from 57.4% reported in the year-ago quarter. Operating margin in the quarter was 6.2%, down 860 basis points, year over year.

CPFL Energia has a negative earnings surprise in one and positive in three of the trailing four quarters, with an average of -30.7%. Also, in the last 7 days, the Zacks Consensus Estimate for the company has gone down by 5.5% to $1.20 for 2013 and has declined 15.6% to $1.19 for 2014.

Other Stocks to Consider

CPFL Energia is a well known electric utility in Brazil and currently has a market capitalization of $8 billion. Other stocks to watch out for in the industry are Huaneng Power International, Inc. (HNP - Snapshot Report) and Alliant Energy Corporation (LNT - Snapshot Report), each with a Zacks Rank #1 (Strong Buy) while IdaCorp, Inc. (IDA - Snapshot Report) carries a Zacks Rank #2 (Buy).

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