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We maintain our Neutral outlook on Wisconsin Energy Corporation (WEC - Analyst Report) as the company is subject to extensive regulations from the different regulatory bodies. These regulations impose restrictions on the company’s operations and cause substantial compliance costs. Any change in regulation or in the regulatory environment in general could impact the company's earnings.

Counting among the positives, an overriding catalyst for Wisconsin Energy is its “Power the Future” plan that aims at attaining energy sufficiency. Investments made in this project have begun to yield results as reflected in higher earnings per share. Other points of strength for the company are its superior balance sheet and its efforts to create shareholder worth through share buybacks and dividend payouts.

Despite the pros, our cautious stance is triggered by the seasonal nature of the electric and gas utility business, with weather patterns having a considerable sway over the company’s performance. Besides, the company needs a steady supply of coal and gas at competitive prices, which it can no way command, to generate power.

The capital intensive utility business requires access to the capital markets, supplementing company generated funds, to implement business strategies. The difficulty in getting funding at competitive prices, owing to market volatility, could significantly increase the company’s cost of capital.

Third-Quarter Recap

Wisconsin Energy's third quarter 2011 operating earnings per share of 55 cents were fairly ahead of the Zacks Consensus Estimate of 49 cents and above the year-ago operating earnings of 47 cents.

Total revenue of $1,052.8 million in the third quarter showed an 8.2% growth from $973.2 million in the year-ago comparable period. Quarterly revenue, however, fell short of the Zacks Consensus Estimate of $1,088 million.

The Zacks Consensus Estimate for fourth-quarter 2011 is 50 cents per share, while that for 2011 and 2012 are $2.15 per share and $2.27 per share, respectively.

Based in Milwaukee, Wisconsin, Wisconsin Energy, through its subsidiaries, generates and distributes electricity in Southeastern, East Central, and Northern Wisconsin, as well as in the Upper Peninsula of Michigan. The company also distributes natural gas. The peers of the company are Alliant Energy Corporation (LNT - Snapshot Report) and Integrys Energy Group, Inc. (TEG - Analyst Report).

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