OGE Energy Corporation
), the largest electric utility in Oklahoma - remains on our
Neutral list with a target price of $61.00. Moreover, the company
has a Zacks Rank #4 (Sell).
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We remain impressed by the company's robust quarterly earnings
and impressive full year 2013 outlook; however, its continued
weak sales performances year over year make us cautious.
The fourth quarter 2012 earnings of 39 cents per share at OGE
Energy exhibited an improvement of over 5.4% from the
comparable year-ago quarter as well as the Zacks Consensus
Estimate of 34 cents.
The upside was attributable to higher gross margins at Oklahoma
Gas and Electric Company (OG&E) due to increased transmission
revenue, recovery of various utility investments and new customer
growth. This was partially offset by higher operating expenses.
Looking at the earnings surprise history, the company has
steadily beaten the Zacks Consensus Estimates in the past four
quarters. The average positive surprise in the trailing four
quarters comes to 7.5%.
Looking ahead, the company expects its full year 2013 earnings in
the range of $3.35-$3.60 per share. The guidance assumes
approximately 100 million average diluted shares outstanding and
normal weather for the year. Currently, the Zacks Consensus
Estimate stands at $3.49 per share, which is the mid-point of the
company's guidance range.
Going forward, the company offers stable regulated utility
businesses, operates in a strong Oklahoma economy, has a bias
towards fixed fee in its unregulated natural gas business, offers
a high dividend yield and employs ongoing infrastructure
All of the above positives have already been priced in the
current valuation, leaving little room for further upside in the
near term. Also, we remain concerned about the volatility in its
commodity business and pending regulatory cases, along with the
unfavorable macro backdrop.
Other Stocks Worth Considering
Other stocks worth considering in the utility industry are
Brookfield Infrastructure Partners L.P.
Huaneng Power International, Inc.
Pike Electric Corporation
). These stocks sporting a Zacks Rank #1 (Strong Buy) have the
potential to rise significantly from current levels.