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We reiterate our long term Neutral recommendation on Wisconsin Energy Corporation (WEC - Analyst Report) on the back of mixed first quarter performance together with a solid growth outlook.

Milwaukee-based Wisconsin Energy operates a high-growth utility in a constructive regulatory environment. The company has a strong and highly-visible near-term growth outlook and a solid financial position, which does not require new equity in the foreseeable future. Moreover, we expect the customers of the company to reap greater benefits through its “Power the Future” investments.

In first quarter 2011, Wisconsin Energy posted operating earnings of $0.72 per share, significantly beating the Zacks Consensus Estimate of $0.66 and the year-ago quarter's operating earnings of $0.55. Total revenue of $1.33 billion in quarter showed a growth of 6.4% from the year-ago comparable period but fell short of the Zacks Consensus Estimate of $1.37 billion.

Though the revenue numbers missed estimates in the first quarter, Wisconsin Energy has been consistently outperforming earnings estimates for the past four quarters. We believe the company’s consistent earnings performance and strong guidance point to a gradual improvement across all segments and management’s confidence in its operations.

This coupled with the Wisconsin Energy’s new dividend policy, which targets dividend payout ratio of about 60% of earnings between 2012 and 2015 should attract investors going forward, in our view.

However, Wisconsin Energy is subject to significant state, local and federal government regulation, which may impose restrictions on the company’s operations and give way to substantial increase in compliance costs which may impact the company’s bottom line.

Also, the successful implementation of WEC’s business strategies depends largely on its ability to access the capital markets (including the banking and commercial paper markets) under competitive terms and rates. Failure to access any of these markets would significantly increase the company’s cost of capital.

In all, we believe Wisconsin Energy is well positioned to benefit from its strong and highly-visible near-term growth outlook, together with its solid financial position, which does not need new equity in the foreseeable future.

However, driven by soft retail electricity demand and uncertainty over regulation, we believe continued weak sales will weigh on earnings in the near term. This keeps us on the sidelines.

Wisconsin Energy currently retains a Zacks #3 Rank (short-term Hold rating). Based on short term ratings, the company fares better than its peers Integrys Energy Group Inc. (TEG - Analyst Report) and Xcel Energy Inc. (XEL - Analyst Report), who carry a Zacks #4 Rank (short-term Sell rating).

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