We recently reiterated our Underperform recommendation on
Companhia Energetica de Minas Gerais
), also known as CEMIG.
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Long-term growth prospects are bright for CEMIG as the company
stands well-positioned to leverage benefits from the rising
infrastructure and advanced agricultural equipment demand across
Worldwide energy consumption is anticipated to grow 56% within
the 2010-2040 period, according to the International Energy
Outlook 2013 published by the U.S. Energy Information
Administration (EIA) in Jul 2013. In Brazil, energy consumption
is expected to rise by 5.9% annually till 2019, according to the
Ministry of Mines and Energy's (MME) ten-year
Despite a promising future, CEMIG's near-term performances and
certain concerns have forced us to maintain our negative view on
the stock for now.
Shares of CEMIG have fallen roughly 10.8% year-to-date. The
company's third quarter 2013 financial results were mixed, as
CEMIG's net income in the quarter increased 3% year over year
while a 4.0% fall was recorded in revenues. Operating costs and
expenses were down 0.1% while cost of energy purchased by
distributors rose significantly due to rise in electricity price
in the Brazilian market.
Besides the financial aspects, being majorly owned by the
government, CEMIG faces risks of political interference in
relation to its operational matters. Further, low rainfall
impacts the company's electricity generation capacity while
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.
In the last 30 days, the Zacks Consensus Estimate for CEMIG has
decreased 17.6% to $1.12 per ADR for 2013 and has gone down by
1.6% to $1.21 per ADR for 2014.
Other Stocks to Consider:
CEMIG is one of the largest integrated electric utilities in
Brazil with hydroelectric power comprising approximately 97% of
the company's installed generation capacity. The company has $8.1
billion market capitalization and currently carries a Zacks Rank
Some other stocks worth considering in the electric utility
Alliant Energy Corporation
American Electric Power Co, Inc.
Black Hills Corporation
). All these stocks carry a Zacks Rank #2 (Buy).