We are maintaining our Neutral recommendation on
). The company currently has a Zacks Rank #2 (Buy).
Why the Reiteration?
The reiteration is primarily based on risks associated with
Northeast Utilities' over-reliance on transmission and
distribution businesses, delay in several important projects, and
stringent regulations. However, we consider the company's
diversified asset base and solid project pipeline as catalysts,
which can mitigate these negatives.
The performance of utility providers like Northeast Utilities
primarily depends on their ability to manage their transmission
and distribution businesses. Northeast Utilities' regulated
businesses contributed substantially to its total earnings in
2012. Transmission and distribution businesses sometimes face
several operational risks including breakdown and failure or
damage of equipments or processes, which affect the company's
operations and increase operating costs.
On the positive side, Northeast Utilities completed its merger
with NSTAR in Apr 2012 and enjoyed related benefits in the fourth
quarter of 2012. The company's quarterly revenues surpassed the
year-ago figure on the back of strong performance from its
transmission segment primarily driven by this merger. We believe
that the NSTAR-merger will allow Northeast Utilities to increase
its scale of operations and widen customer base.
As far as organic growth strategies are concerned, Northeast
Utilities invested $1.47 billion in 2012 under the infrastructure
spending program for its several expansion and development
projects. These initiatives will allow the company to increase
its transmission capacity, which will subsequently help to meet
rising demand. Later, this will provide the company attractive
earnings and cash flow over the couple of years.
Over the past two months, the Zacks Consensus Estimate for
first-quarter 2013 increased 1.6% to 65 cents per share. The
Zacks Consensus Estimate for full-year 2013 earnings currently
stands at $2.55 per share, up 12.06% year over year primarily
attributable to lower interest costs and operating and
Other Stocks to Consider
Other stocks from the industry that are presently performing
Brookfield Infrastructure Partners L.P.
Empresa Nacional de Electricidad S.A.
Pike Electric Corporation
). All the three stocks carry a Zacks Rank #1 (Strong Buy).
BROOKFIELD INFR (BIP): Free Stock Analysis
ENDESA-CHILE (EOC): Free Stock Analysis
NORTHEAST UTIL (NU): Free Stock Analysis
PIKE ELECTRIC (PIKE): Free Stock Analysis
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