We maintained our recommendation on energy holding company,
) at Neutral on Nov 4, 2013. The company posted strong
third-quarter results driven by improved electric margins from
customer growth and rate increases. The company holds a Zacks
Rank #3, which is equivalent to a short-term Hold rating.
Columbia, S.C.-based SCANA's operations include generation,
transmission, distribution, and sale of electricity to retail and
wholesale customers within the state. The company also purchases,
sells and transports natural gas to retail customers; provides
energy-related risk management services; and acquires, owns and
provides financing for nuclear fuel, fossil fuel and emission
SCANA's nuclear expansion project is a catalyst for future
earnings growth. Given SCANA's financing plan, construction
budget and schedule, we expect it to fund its nuclear expansion
project. Management expects 2013 earnings in the range of
$3.25-$3.45 per share, with an internal target of $3.35 per
share. It expects to achieve the target based on industrial
expansion and continued customer growth. As the company's capex
grows with new nuclear projects and investments are recognized in
the rate base, the regulated earnings power is expected to
SCANA is well positioned in a positive regulatory environment,
has a low risk business with outstanding customer growth and
operational efficiency. These in turn are favorable for stable
cash flow generation and growth. Another positive for
shareholders is SCANA's utility business mix. The majority of the
company's total earnings come from the regulated electricity and
natural gas utilities business.
We are concerned about SCANA's heavy debt level and the overall
business risk associated with the nuclear generation construction
project. The last nuclear generation construction cycle severely
affected the stocks of numerous electric utilities. This fact
generates a legitimate level of investor anxiety.
SCANA's capital program primarily has two nuclear plants, which
will cost $6 billion through 2018. Risks allied with financing
the projects will be aggravated in 2013 as the company's capital
spending levels rise. Execution risks latent in such large
projects and regulatory uncertainties also remain. Further, the
delay in commissioning its first reactor by a year, to 2017, is
likely to increase its capital expenses.
Other Stocks to Consider
While we prefer to remain on the sidelines for SCANA, there are
other stocks in the sector that appear rewarding. Among these,
SM Energy Company
Exterran Holdings, Inc.
TransAtlantic Petroleum Ltd.
) carry a Zacks Rank #1 (Strong Buy) and are expected to
outperform the broader market over the next few months.
EXTERRAN HLDGS (EXH): Free Stock Analysis
SCANA CORP (SCG): Free Stock Analysis Report
SM ENERGY CO (SM): Free Stock Analysis Report
TRANSATL PETROL (TAT): Free Stock Analysis
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