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Xcel Energy Reaffirmed at Neutral

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We reiterate our Neutral recommendation on Xcel Energy Inc. (XEL - Free Report) . The Minnesota-based utility posted mixed financial results in the third quarter 2012 with earnings beating the Zacks Consensus Estimate while the revenue lagging it.

We believe the company’s $13.2 billion capex outlook for the timeframe 2013 to 2017 will help in executing its infrastructure upgrade program and also boost its pipeline and electric business. Xcel Energy’s CapX2020 program is advancing well and is expected to contribute to near-term profitability.

However, expenses related to the incremental property tax will continue to impact the company’s bottom-line results in the upcoming quarters. Moreover, regulatory pressure and seasonal demand volatilities could limit growth at Xcel Energy.

Favorable rate changes in Xcel Energy’s New Mexico and Texas units will benefit the top-line results, going forward. The company’s successful cost-containment efforts are also an encouraging sign.

Given the ongoing development initiatives at Xcel Energy, the stock retains a short-term Zacks #2 Rank (Buy rating).

Another operator in the utility space American Electric Power Company Inc. (AEP - Free Report) holds a Zacks #3 Rank (Hold rating) in the short term. It is heavily investing in growth-acceleration projects like the 108-mile Prairie transmission program connecting east and west Kansas as well as the electric generation Turk Plant in Arkansas which will come online before the end of 2012. However, uncertainty regarding approval to operate its Ohio generating assets could limit growth.

Xcel Energy reaffirmed its earnings guidance for 2012 in the range of $1.75–$1.85 per share. The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at 28 cents and $1.80 per share, respectively.

Xcel Energy is an electricity and natural gas company, with operations in eight Western and Midwestern states. With a market capitalization of $13.04 billion, the company has 11,312 full time employees.

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