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Analyst Blog

On May 14, 2013, Zacks Investment Research downgraded MGE Energy Inc. (MGEE - Snapshot Report) to a Zacks Rank #2 (Buy).

Why the Downgrade?

Although MGE Energy benefited from cold winter weather in the first quarter of 2013, the U.S. economy is still frail and with a slow recovery, we expect the company to witness lukewarm growth.

The Zacks Consensus Estimate for the second quarter 2013 reflects a projected fall of 1.61% from the year-ago earnings of 62 cents per share. In the past two months quarterly estimated earnings per share witnessed no upward revision.

Moreover, MGE Energy’s installation of environment controls in compliance with strict regulatory laws at its energy generation facility in Wisconsin is expected to add to cost pressure.

However, MGE Energy’s strong financial position and gain from investments in American Transmission Company ("ATC") will keep the company well positioned.

Other Stocks to Consider

Despite the weak macroeconomic environment, the company is expected to do well. The reduction in coal-to-gas switch will act as tailwinds as coal is the major source of generation for MGE Energy.

Other utility stocks that are currently performing well and warrant a look include Empresa Nacional Electricidad SA (EOC - Snapshot Report), CPFL Energia S.A. (CPL - Snapshot Report) and El Paso Electric Co. (EE - Snapshot Report). All the above are well placed in the U.S. energy market and presently hold a Zacks Rank #1 (Strong Buy).

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