On Apr 5 we downgraded our recommendation on Integrys
Energy Group ( TEG ) to Neutral from
Outperform. The diversified utility service provider presently
carries a Zacks Rank #3 (Hold).
Why the Downgrade?
The primary concern which led to the lowering of our
recommendation was the uncertainty regarding the outcome of several
rate cases associated with Integrys' subsidiaries.
In addition, the company reported negative earnings surprises in
three of the last four quarters. Over the past two months, the
Zacks Consensus Estimate for the first quarter 2013 slid by 2.44%
to $1.60 per share from $1.64 per share.
Cause of Concern
Integrys' operations are significantly impacted by variance in
weather conditions. Changing weather patterns lead to fluctuations
in demand and hence affect sales of the company. In fact, weather
irregularities hurt 2012 earnings by 40 cents per share.
The volatility in market prices of coal and natural gas could
also impact Integrys' margins. The slow recovery of the U.S.
economy also hinders the company's growth trajectory with energy
prices still remaining weak.
Besides, marketability of Integrys' generation business is
reliant on third party transmission facilities. This makes its
operations vulnerable to any disruption befalling these third-party
On the other hand, we believe Integrys' power contract win from
the Chicago government, increasing focus on infrastructure
modernization and a solid asset portfolio are anticipated to
counter the above negatives.
Other Stocks to Consider
While we hold a modest outlook for Integrys Energy in the
upcoming quarters, other utility companies worth a look are
Brookfield Infrastructures Partners L.P. ( BIP ), Pike
Electric Corporation ( PIKE ) and
Empresa Nacional Electricidad SA ( EOC ). All the above
currently carry a Zacks Rank #1 (Strong Buy).BROOKFIELD INFR (BIP): Free Stock Analysis
ReportENDESA-CHILE (EOC): Free Stock Analysis ReportPIKE ELECTRIC (PIKE): Free Stock Analysis
ReportINTEGRYS ENERGY (TEG): Free Stock Analysis
ReportTo read this article on Zacks.com click here.Zacks Investment