On Apr 10, 2014, we issued an updated research report on
Companhia Paranaense de Energia
), or COPEL. We believe headwinds will restrict the company's
growth momentum in the next 6−12 months. Investors seeking
exposure in electric utilities of Brazil are advised to avoid
adding COPEL to their portfolio and those with existing holdings
in the company should consider selling them.
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COPEL's performance in the last few quarters gave its
shareholders little reason to rejoice. Year to date, the company
yielded a negative return of 16.4%. Rising expenses and higher
debt levels remain major impediments to the company's growth
momentum. Over the last 5 years, operating costs and expenses
have swelled nearly 55%, while escalating debt levels have
increased the company's financial obligations.
Also, COPEL deals with lawsuits that might result in huge losses
in the event of any unfavorable judgment. The company maintained
a provision for legal claims amounting to R$1.3 billion for cases
considered as probable losses at the end of 2013. Also, cases
worth R$2.9 billion were classified as possible losses. Further,
governmental interference and dependence on hydro sources for
electricity act as potential headwinds.
Presently, the Zacks Consensus Estimate is pegged at $1.75 for
2014 and at $1.97 for 2015, reflecting a respective decline of
0.6% and 17.2% in the last 30 days. Also, COPEL has an
of -16.57% for 2014 and -21.32% for 2015.
However, we believe that long-term growth prospects of COPEL are
compelling with energy consumption anticipated to rise 5.9%
annually till 2019, according to the Ministry of Mines and
Energy's (MME) 10-year plan. The company has been building on its
electricity generation capacity to tap the growing demand for
electricity in the country.
COPEL presently has a $3.8 billion market capitalization and
carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks
in the electric utility industry include
Black Hills Corporation
NRG Energy, Inc.
), all of which carry a Zacks Rank #1 (Strong Buy).