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We upgraded our recommendation on the diversified holding company, Wisconsin Energy Corporation (WEC - Analyst Report), to Outperform from Neutral. In the last three consecutive quarters, the company’s earnings per share surpassed the Zacks Consensus Estimates.

Reasons for Outperform

Wisconsin Energy recently completed its 10-year “Power the Future” (PTF) plan, worth $3 billion. This program deals with improvement of existing generation and distribution assets. We consider this program as a strong future earnings generator.   

Currently, Wisconsin Energy realigned its capital spending strategy. The company shifted its focus to small projects and improvement of existing distribution facilities from large renewable generation and air quality control ventures.

The company is in the middle of its two important projects: a biomass fuel generating plant and an air quality control project.

We believe completion of these two projects and PTF program will enable the company to increase its emission-free power generation capacity and comfortably meet increasing energy demand of the new customers.  

Wisconsin Energy still follows its inorganic expansion strategy. In November 2012, the company signed joint-ownership and air quality control agreements with Wolverine Power Cooperative. Per the contract, Wolverine will get a minority interest in the facility and will offer funding-assistance to the company. We believe that such tie-ups will enable Wisconsin Energy to improve its operational and financial performance in the future.

However, over-reliance on seasonal patterns, and compliance with current and future legislations might escalate operating expenses, which will likely weigh on the company’s future profitability. The company currently has a short-term Zacks #3 Rank (Hold).

Riding on the strong positives, the Zacks Consensus Estimates for full-year 2012 earnings per share currently stands at $2.32, reflecting a year-over-year growth of 6.4%.

Other Stocks to Consider

Besides Wisconsin Energy Corporation, other stocks in the utility sector that are currently performing well include Pike Electric Corporation (PIKE - Snapshot Report) and Huaneng Power International, Inc. (HNP - Snapshot Report). Both Pike Electric and Huaneng Power presently carry a short-term Zacks #1 Rank (Strong Buy).

Milwaukee, Wisconsin-based Wisconsin Energy Corporation engages in generation and distribution of electricity in southeastern, east central, and northern Wisconsin, and Upper Peninsula of Michigan.

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