We have maintained our Neutral recommendation on
OGE Energy Corp.
) on Jun 4, 2013 based on the company's investment in
infrastructure, a favorable Oklahoma economy and hedging
activities. However, these are being offset by storm restoration
costs and an unfavorable macro backdrop.
Why the Reiteration?
OGE Energy is a well-positioned regulated utility and has an
unregulated midstream gas business that carries low risk.
Moreover, recent investments and other wind development projects
have positioned the company well to comply with environmental
regulations and to meet its 5%-7% long-term EPS growth target.
The company is pursuing an aggressive energy efficiency program,
investing in renewable energy technologies and upgrading its
infrastructure. The company is particularly focused on developing
renewable energy projects and upgrading its distribution system.
Only last month, OGE Energy Corp.,
CenterPoint Energy Inc.
) and ArcLight Capital Partners, LLC announced that they have
formed a master limited partnership ("MLP"). This partnership has
created a mid-stream business. As a 50% general partner in the
MLP, OGE Energy will benefit from a tax exemption.
One more important factor is that OGE Energy operates in
Oklahoma, where unemployment is significantly lower than the
national average. The resilience in the economy of its service
area bodes well for the company.
One of the company's subsidiaries, Enogex' natural gas processing
volumes are shifting steadily toward a more fixed fee-based
business. Also, through hedging, the company has significantly
reduced its exposure to commodity spread volatility.
Despite, these positives we remain on the sidelines based on the
first quarter 2013 results, volatility in the company's commodity
business, pending regulatory cases, costs incurred for Oklahoma
tornado restorations and the currently unfavorable market
Other Stocks to Consider
OGE Energy currently has a Zacks Rank #3 (Hold). Stocks worth
considering in the energy space are
DTE Energy Company
), both with a Zacks Rank #2 (Buy).
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CENTERPOINT EGY (CNP): Free Stock Analysis
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OGE ENERGY CORP (OGE): Free Stock Analysis
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