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Analyst Blog

On Apr 2, 2014, we issued an updated research report on Companhia Energetica de Minas Gerais (CIG - Analyst Report), also known as CEMIG. Currently, we advice investors seeking exposure in electric utilities of Brazil to avoid adding CEMIG to their portfolio as well as investors with existing holding in CEMIG to refrain from selling them.  

CEMIG operates in one of the promising industries of Brazil. The country’s electricity market is the largest electricity market in South America with an installed capacity of 121.1 thousand Megawatts (MW) in 2012. Energy consumption in the country rose 3.5% year over year in 2013, while an annual rise of 5.9% is expected till 2019, according to the Ministry of Mines and Energy's (MME) 10-year plan.    
 
In order to reap benefits from the growing demand for electricity, CEMIG has made investments in hydro plants as well as wind farms to improve its electricity generation capacity. The company has also invested to improve its distribution services. Over a period of 30 years, the company targets to capture a major share of the Brazilian generation and distribution businesses, thus becoming the chief player in the Brazilian electricity utility sector.

Despite these bright long-term growth prospects, there exist certain near-term concerns that might prove to be an impediment to CEMIG’s growth momentum. Potential headwinds include rising operating expenses, governmental interference and dependence on hydro sources for electricity.

CEMIG, in the trailing 12-months, has provided a negative return of 3.8%, while its share price has grown over 62% in the past 5 years.

CEMIG has an $8.6 billion market capitalization and currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the electric utility industry include CPFL Energia S.A. (CPL - Snapshot Report), Otter Tail Corporation (OTTR - Snapshot Report) and Black Hills Corporation (BKH - Snapshot Report), all of which carry a Zacks Rank #1 (Strong Buy).
 

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