We reiterate our Neutral Recommendation on Minnesota-based
Xcel Energy Inc . ( XEL ).
The company posted mixed financial results in the second quarter
2012, with a bottom-line exceeding and top-line missing the
corresponding Zacks Consensus Estimates.
With a likely recovery in natural gas prices in the following
quarters, Xcel Energy's recent natural gas related Brush asset
acquisition will help propel near-term top-line growth.
However, the company's requests for deferred accounting for
incremental property taxes as well as for property tax rider were
overruled by the Minnesota Commission. This will lead to expenses
amounting to $24 million of incremental property taxes, thereby
dragging down Xcel Energy's bottom-line by roughly 3 cents per
share in 2012.
This impact could be tempered by the favorable outcomes in the
electric rate case in Colorado and South Dakota which will generate
substantial revenue upside for the company in the near term.
Going forward, the company's robust string of regulated
investment opportunities will aid Xcel Energy to post solid results
in the upcoming quarters. The company plans to make investments of
$13.4 billion over a period of five years from 2012 through 2016.
In addition, the company's agreement with NextEra Energy
Inc. ( NEE ) to expand wind resource generation by 400
megawatt (MW) would enhance future growth prospects.
Nonetheless, increasing compliance costs from regulatory bodies
and revenue volatility rising out of seasonal variations are
periodic challenges that could limit growth opportunities for the
company. Besides, with the implementation of stringent
pro-environment laws, Xcel planned to idle some of its coal-fired
plants like Arapahoe unit 4, which will impact the revenue
performance in the long term.
Xcel Energy expects earnings per share for 2012 to be on the
lower end of the guidance range of $1.75-$1.85 per share. The Zacks
Consensus Estimates for the third quarter and full year 2012 for
the company presently stand at 71 cents per share and $1.78 per
Ohio-based American Electric Power Co., Inc. (
), an Xcel Energy peer, faced with regulatory restriction by
Environmental Protection Agency ("EPA"), depressing coal market
outlook and moderate financial outcomes in the second quarter 2012,
also closed down some of its coal-fired power stations.
Xcel Energy is a U.S. electricity and natural gas company, with
operations in eight Western and Midwestern states. Xcel Energy
currently retains a Zacks #4 Rank (short-term Sell rating). With
market capitalization of $13.48 billion, it has a total of 11,312
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XCEL ENERGY INC (XEL): Free Stock Analysis
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