COPEL Remains Neutral Rated

We recently reiterated our Neutral recommendation on Brazilian electric utility, Companhia Paranaense de Energia (ELP - Analyst Report), also known as COPEL.

Why Neutral?

COPEL generates, transmits, and distributes electricity, primarily in the State of Parana and directly serves approximately 4.0 million customers in 396 municipalities and 1,114 localities. Besides its core business, the company has expanded its reach in other businesses including telecommunications, natural gas, engineering, water, and sanitation services.

Recovery in the global economy seems to be inducing growth in many emerging nations and, Brazil is one of them. The country is developing fast and huge government investments are being made to improve its infrastructure and power generation capabilities. According to the International Monetary Fund (IMF), the country is expected to grow 3.5% in 2013 and 4.0% in 2014.

Upcoming sporting events to be held in Brazil, rising government spending to improve the country’s infrastructure, growing demand for modernised machinery - all these bode well for the electric industry of the country. According to the Ministry of Mines and Energy's (MME) ten-year plan till 2019, energy consumption in Brazil is expected to rise by 5.9% annually.

COPEL is expanding its generation capacity to leverage benefits from the growing electricity demand. The company has sanctioned roughly R$1,964.1 million to improve its Generation and Transmission, Distribution as well as Telecommunications businesses.

On the flip side, some near-term concerns have forced us to remain on the sidelines for COPEL. Rising operating expenses and higher liabilities are the prime headwinds for growth. Moreover, being a state-owned company, political interference and unfavorable regulatory systems influence COPEL’s decision making to a great extent.

Other Stocks to Consider

Other stocks to watch out for in the industry are Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report), Pike Electric Corporation (PIKE - Snapshot Report) and Otter Tail Corporation (OTTR - Snapshot Report), each holding a Zacks Rank #1 (Strong Buy).