COPEL Downgraded to Neutral - Analyst Blog

By Zacks Equity Research,

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We recently downgraded the Brazilian electric utility, Companhia Paranaense de Energia ( ELP ) , also known as COPEL from Outperform to Neutral recommendation.

Why Downgrade?

Growth in the global economy has spurred demand for better infrastructure and advanced agricultural equipment and in turn is raising demand for electricity. According to the International Energy Outlook 2013 published by the U.S. Energy Information Administration (EIA) in Jul 2013, energy consumption worldwide is anticipated to grow 56% within the 2010-2040 period. Talking of Brazil, energy consumption in the country is expected to rise by 5.9% annually, according to the Ministry of Mines and Energy's (MME) ten-year plan till 2019.

COPEL is one of the largest electric utilities- engaged in generation, transmission and distribution in Brazil and currently serves over 4.1 million customers in 395 municipalities and 1,113 localities. The company, to leverage benefits from the apparent demand growth, is making serious efforts to extend its generation capabilities and improve its services.

Besides the bright long-term aspects of COPEL, the near-term concerns surrounding the stock have kept us on the sidelines. We believe higher operating expenses, high debt levels, huge dependency on rainwater for electricity generation and political interference will restrict the growth momentum for COPEL. Operating expenses in the second quarter grew 2.1%, thereby impacting margins.

Other Stocks to Consider

COPEL currently has a $3.3 billion market capitalization. Other stocks to watch out for in the industry are Huaneng Power International, Inc. ( HNP ) with a Zacks Rank #1 (Strong Buy) while Alliant Energy Corporation ( LNT ) and UNS Energy Corporation ( UNS ), each come with a Zacks Rank #2 (Buy).

COPEL-ADR PR B (ELP): Free Stock Analysis Report

HUANENG POWER (HNP): Free Stock Analysis Report

ALLIANT ENGY CP (LNT): Free Stock Analysis Report

UNS ENERGY CORP (UNS): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: EIA , ELP , HNP , LNT , UNS

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