On Jun 24, we issued an updated research report on Wisconsin Energy Corp. (WEC - Free Report) . The U.S. Environmental Protection Agency’s (EPA) new proposal to curb carbon emission during electricity generation is our major causes of concern. Several operational risks, delay or termination in generation and distribution ventures, or the failure to access capital market are also challenges to Wisconsin Energy’s future growth.
Wisconsin Energy, a Zacks Rank #2 (Buy) stock, reported impressive results in the first quarter of 2014. Both earnings per share as well as revenues surpassed their respective Zacks Consensus Estimates and improved year over year, primarily on the back of improved retail electricity and natural gas sales as a result of frigid winter.
On Jun 2, 2014, the EPA proposed the Clean Power Plan that includes lesser carbon emission from the electricity generating facilities. The EPA plans to reduce 30% carbon emissions from the power sector by 2030 from the 2005 levels. Records show that Wisconsin Energy generates a significant portion of electricity from coal. If the proposal is approved without any downward revision in emission rates, the company will have to invest more in executing pollution control initiatives. This might increase Wisconsin Energy’s cost of operations.
Operations of utility providers are sometimes interrupted due to breakdown or failure of equipment or processes as a result of disruption in fuel supply or transportation, accidents and labor disputes. Wisconsin Energy’s operations too are vulnerable to such untoward events.
Currently, Wisconsin Energy is in the middle of several generation and distribution projects. Any delay or termination in projects will affect the company’s power generation goals and ability to meet increasing customer demand.
However, we have identified several catalysts, including a strong financial position, steady increase in customer counts and systematic investments in both organic as well as inorganic projects. In addition, an effective share repurchase program and payment of dividend on regular intervals are appreciable. These growth drivers would help Wisconsin Energy in countering the negatives.
Key Picks from the Sector
Other stocks worth considering in the utility sector include Black Hills Corporation (BKH - Free Report) , Dynegy Inc. and NRG Energy, Inc. (NRG - Free Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).