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Analyst Blog

On Sep 30, 2013, we have reiterated our Neutral recommendation on Wisconsin Energy Corporation (WEC - Analyst Report). The company currently has a Zacks Rank #2 (Buy).

Why the Reiteration?

Wisconsin Energy’s earnings per share in the previous quarter were 52 cents, beating the Zacks Consensus Estimate by 5 cents and the prior-year figure by a penny. Quarterly revenues were $1,012.3 million, surpassing the Zacks Consensus Estimate by $49.3 million and the year-ago figure by 7.2%. Improvement in the top and bottom line was primarily driven by higher demand for natural gas during a cooler-than-normal spring season.

Wisconsin Energy continues to improve and strengthen its asset portfolio by upgrading aging distribution infrastructure, constructing blocks and installing pipes and poles. The company is also constructing a biomass fuel generating plant in Rothschild and converting the fuel source for its Valley Power Plant. Wisconsin Energy has completed a 10-year “Power the Future” plan. These initiatives will help Wisconsin Energy to enhance the reliability of services, which in turn will support the company to generate adequate electricity and meet the growing demand for power in its service territory.

Apart from a steady investment in growth projects, Wisconsin Energy supports its shareholders to maximize wealth through dividend payment at regular intervals. During the first six months of 2013, the company paid dividends of $155.6 million on common stock.

On the flip side, utility providers like Wisconsin Energy’s operations are subject to federal, state, and local rules. The regulators frequently adjust and modify existing regulations to control pollution and waste management. Utilities incur significant costs in order to comply with a changing regulatory scenario, thereby putting pressure on margins.

Apart from a stable liquidity position and modern technologies, a skilled and proficient workforce plays a significant role in the regular operations of utility companies. We remind investors that Wisconsin Energy’s labor agreements will lapse in 2013. If the company fails to resolve the issues with the labor unions, the affected workers may halt work, thereby impacting performance going forward.

Other Stocks to Consider

Other stocks from the industry that are presently performing well include Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report), Alliant Energy Corporation (LNT - Snapshot Report) and Entergy Corporation (ETR - Analyst Report), each with a Zacks Rank #2 (Buy).

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