We have downgraded our recommendation on
Pepco Holding Inc.
) to Neutral from Outperform, as we felt the delay in the service
date of Mid-Atlantic Power Pathway (MAPP) transmission project will
impact the company's earnings.
Pepco Holding has gradually transformed itself into a regulated
utility by divesting its unregulated businesses. It has a stable
customer base, spread across commercial, residential and government
customers. Besides, the company is also making investment on
infrastructure to develop its transmission systems and provide
better services to its consumers.
However, like other regulated utility companies, Pepco is also
subject to regulation by various federal, state and local
regulatory agencies, which could significantly impact operations.
Inconsistent weather patterns have of late impacted the Power
Delivery and retail energy supply businesses to a great extent.
The utility companies make capital investments to improve and
upgrade its transmission and distribution systems, to ensure
uninterrupted supply of power to its customers. The regulated
companies recover the investment through rate increase filing.
Presently, Pepco Holdings has five pending electrical regulatory
rate cases. Any unfavorable outcome in the rate cases could hurt
the prospects of the company and its ability to carry on with
Pepco failed to meet our top-line expectation in the first
quarter of 2012 due to lower contribution from all the three
operating segments of the company. Pepco expects earnings per share
for 2012 to be in the band of $1.15 to $1.30. The guidance assumes
normal weather pattern for rest of the year, which remains
Pepco Holdings currently retains a Zacks #3 Rank (short-term
Hold rating). Another utility operator in the region
American Electric Power Co., Inc
) presently retains a Zacks #4 Rank, which translates into a
short-term Sell rating.
Based in Washington, District of Columbia, Pepco Holdings,
through its two operating divisions, Power Deliver and Competitive
Energy, involves in transmission and distribution of electricity,
as well as delivery and supply of natural gas.
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