Integrys Energy Group: A Strong Buy

On Jan 17, Zacks Investment Research upgraded Integrys Energy Group ( TEG - Analyst Report ) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The contract win to supply electricity to nearly a million residents of Chicago is a big positive for the company. This contract will add nearly $300 million in revenue per year until May 2015. All of the electricity supplied would be from non-coal power units.

Meanwhile we believe Integrys’ decision to acquire Fox Energy Company will come in handy. Integrys will be able to utilize the 593 Megawatt combined cycle plant of Fox Energy to fulfill the clauses of the Chicago contract.

This electric utility registered an earnings surprise of 44.7% in the third quarter. The average earnings beat in the last four quarters comes to 3.57%. The long-term earnings growth rate of the company is 5.3%.

Nearly 90% of the earnings of Integrys come from its regulated operations. Rate increases at People’s Gas, North Shore Gas, and Upper Peninsula Power will continue to benefit the company.

Moreover, the capital expenditure budget of $2.7 billion over the 2012 through 2014 period is directed towards undergrounding of electric distribution lines, main replacement and acquisition. These initiatives will increase reliability of service and enhance the generation capacity of the company.

Another factor making the shares attractive is its consistent dividend payment policy that runs for 72 years now. An annual dividend of $2.72 per share results in a dividend yield of 5.09%, at par with the industry average.

The Zacks Consensus Estimate for 2013 moved higher by 1.16% to $3.48 per share over the last 60 days, which reflects year-over-year growth of 5.7%.

Other Stocks to Consider

Other than Integrys Energy Group there are a few more electric utilities performing well and holding a favorable Zacks Rank. Other stocks worth considering are Ameren Corporation ( AEE - Analyst Report ) , Wisconsin Energy Corporation ( WEC - Analyst Report ) and Pike Electric Corporation ( PIKE - Snapshot Report ) . All of these stocks carry a short-term Zacks Rank #1 (Strong Buy).