We have lowered our recommendation on Integrys Energy
Group, Inc. ( TEG ) to Underperform from Neutral. We believe
the increasing retail competitive pressure in the northeastern US
markets and risks from weather variations will weigh on the
Integrys Energy posted back-to-back weak financial results in the
first and second quarters of 2012 and missed our expectation on
both occasions. Integrys' earnings in the first half of the year
were impacted by lower sales from the natural gas segment due to
mild weather conditions.
The company also needs to adhere to the regulations laid down by
the Federal Energy Regulatory Authority and any changes in the
policies from the authority could weigh on the margins of the
company. The pending rate cases can impact earnings if the company
fails to have a positive ruling.
The positive catalysts for the company are an effective mix of
generation assets and natural gas distribution properties.
Meanwhile, the company's involvement in infrastructure expansion
projects in Chicago and Columbia power plant could offer some
relief in the near term.
However, to fund these development projects, the company needs to
access the capital markets, which is extremely volatile in nature
and might limit the availability of capital to the company and its
subsidiaries, which can adversely affect its ability to sustain
The company expects adjusted earnings for full year 2012 to be in
the band of $3.00-$3.15 per share. Our expectation for the year is
presently pegged at $3.09 per share.
Integrys Energy retains a short-term Zacks #3 Rank, (Hold rating).
The company has to compete with OGE Energy
) and Wisconsin Energy
Chicago, Illinois-based Integrys Energy Group is a diversified
holding company providing products and services in both regulated
and non-regulated energy markets through its subsidiaries. With a
market capitalization of $4.28 billion, the company has 4,619 full
OGE ENERGY CORP (OGE): Free Stock Analysis
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