We recently upgraded the Brazilian electric utility,
Companhia Paranaense de Energia
ELP - Analyst Report
also known as COPEL
from Underperform to Neutral, expecting the company to perform in
line with the broader market.
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COPEL is well positioned in the Brazilian electricity industry
engaged primarily in generation, transmission and distribution.
The company provides electricity and services to over 4.1 million
customers in 395 municipalities and 1,113 localities.
Growth prospects are bright for electric utilities across the
globe due to increased demand for electricity, induced by demand
for better infrastructure and advanced agricultural equipment.
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. In Brazil, energy consumption is expected
to rise by 5.9% annually, according to the Ministry of Mines and
Energy's (MME) ten-year plan till 2019.
To leverage benefits, COPEL has plans to invest $1.9 billion in
2013 aimed at improving its internal generation capacity and
distribution network. Besides, the company rewards its
shareholders through dividend payments. Efforts to reduce its
costs are also looked upon favorably.
Despite the long-term growth prospects, near-term concerns and
performance have restraomed our upgrade on COPEL to a Neutral. A
brief discussion on the company's third quarter results has been
COPEL's third quarter 2013 result was weak as earnings per ADR
plummeted 14.5% year over year despite a 10.5% increase in
revenues. Electricity sales to final customers and distributors
were strong. Operating costs and expenses increased 15.7%. We
believe higher operating expenses, political interference and
unpredictable weather conditions are causes of concern
Other Stocks to Consider
COPEL currently has a $3.6 billion market capitalization and
carries a Zacks Rank #4 (Strong Sell).
Some better-ranked stocks in the electric utility industry
Alliant Energy Corporation
American Electric Power Co, Inc.
Black Hills Corporation
). All these stocks carry a Zacks Rank #2 (Buy).