We recently upgraded our recommendation on
Companhia Energetica de Minas Gerais
also known as CEMIG
, from Underperform to Neutral. We expect the company to perform
in line with the broader market in the next 6-12 months.
Why the Upgrade?
We find the long-term growth prospects of CEMIG to be bright as
electricity demand is on the rise in Brazil. The national agency,
Ministry of Mines and Energy (MME), in its 10-year plan that runs
up to 2019 has predicted electricity consumption to increase by
about 5.9% annually. Government spending plans to improve the
industry's infrastructure is an added boon.
For CEMIG, new projects, strategic acquisitions and investments
all bode well for the future. The company estimates that in 30
years it will capture a major share of the Brazilian generation
and distribution businesses; thus becoming the chief player in
the Brazilian electricity utility sector. Further, the recent
partnership with Vale will be synergistic going forward by
enabling Cemig GT to expand its business opportunities.
Also, the company's focus on rewarding its shareholders through
dividend payments is quite evident from the Dec 2013 payouts.
Considering the factors in favor of CEMIG, we have upgraded the
stock from Underperform. However, our upgrade was restricted to a
Neutral view given the concerns about rising operating expenses,
governmental interference and dependence on hydro sources for
In the last 30 days, the Zacks Consensus Estimate for CEMIG has
decreased 8.4% to $1.09 per ADR for 2013 and has gone down by
8.7% to $1.16 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 $8.8
billion market capitalization and currently carries a Zacks Rank
Some better-ranked stocks in the electric utility industry
NRG Yield, Inc.
Westar Energy, Inc.
Wisconsin Energy Corp.
). All the companies carry a Zacks Rank #1 (Strong Buy).
CEMIG SA -ADR (CIG): Free Stock Analysis
NRG YIELD INC-A (NYLD): Free Stock Analysis
WISC ENERGY CP (WEC): Free Stock Analysis
WESTAR ENERGY (WR): Free Stock Analysis
To read this article on Zacks.com click here.