We recently downgraded
Companhia Energetica de Minas Gerais
), also known as CEMIG, from Neutral to an Underperform
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CEMIG SA -ADR (CIG): Free Stock Analysis
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Why the Downgrade?
Revival from the lows experienced due to the global crisis has
spurred demand for a better infrastructure and modernized
agricultural equipment. This in turn has made a few industries
very lucrative, including the electricity industry.
Emerging countries are progressing well on the recovery path.
Talking of Brazil, electricity demand in the country is on the
rise, especially when it is gearing up to host two major sporting
events in the coming years. The national agency has predicted a
consumption hike of about 4.5% in the 2011-2021 timeframe.
Government spending has been geared up to improve the
infrastructure in the electricity industry.
Despite compelling long-term growth prospects, concerns
surrounding Cemig have forced us to downgrade the stock. Rising
cost of services and operating expenses, governmental
interference and dependence on hydro sources for electricity pose
serious threat to growth. In the first quarter 2013, expenses
grew by 7% year over year and offset partially the revenue
increase in the quarter.
Also, denomination of a portion of loans and financings in
foreign currency raises risks of higher financial expenses in the
event of devaluation of the Brazilian currency for Cemig.
The Zacks Consensus Estimate for Cemig is US$1.45 per ADR for
year 2013 and US$1.33 per ADR for year 2014, representing a
year-over-year decline of 40.8% and 8.1% in 2014, respectively.
Other Stocks to Consider:
Cemig currently has an $8.8 billion market capitalization. Other
stocks to watch out for in the industry are
Companhia Paranaense de Energia
CPFL Energia S.A.
), each with a Zacks Rank #1 (Strong Buy) while
) has a Zacks Rank #2 (Buy).