We reiterate our Neutral recommendation on
Wisconsin Energy Corporation
). The company's first quarter earnings surpassed the Zacks
Consensus Estimate and the year-ago quarter earnings. This was
primarily driven by robust recovery of fuel costs from power
generation, decline in company's operation and maintenance costs
and strong share repurchase activities.
Wisconsin Energy's utility operations and implementation of
business strategies requires substantial capital investments. From
its cash balance of $18.1 million as of March 31, 2012, it is quite
obvious that the company needs to have access to the capital
markets, and banking and commercial paper markets under competitive
terms and rates. Failure to utilize any of these markets might
increase the company's cost of capital.
Following the successful completion of the "Power the Future"
(PTF) plan, Wisconsin Energy is now focusing on its smaller
projects and upgrading existing plants. Presently, the company is
involved in two major projects; the first deals with the
construction of a 50-megawatt biomass plant in Northern Wisconsin,
while the second is related to air quality control upgrade for the
older coal-fired units. We believe an increase in the company's
electric generating capacity and a renewed focus on core electric
and gas operations will help drive earnings going
In terms of providing better return to shareholders, Wisconsin
Energy adopted a new dividend policy to target dividend payout
ratio of 60% of earnings in the year 2014. To achieve its
objective, the company has already increased its quarterly dividend
to 30 cents per share from 26 cents per share, which will result in
a 15% increase in annual dividends. We believe this is a smart move
to attract more investors in the future.
On the flip side, the electric and natural gas utility
businesses primarily depend on seasonal changes, which subsequently
impact its financial results. Demand for electricity is often high
in summer and winter months. Unusually mild winters and summers can
adversely impact the company's operational results. Wisconsin
Energy saw demand slackening in the first quarter of 2012 due to a
mild winter. This in turn affected its top-line numbers.
During the first quarter earnings call, Wisconsin Energy posted
its 2012 earning guidance in the range of $2.24 to $2.29 per share.
As per the Zacks Consensus Estimates, the company's second quarter
and full year 2012 earnings are pegged at 44 cents and $2.28 per
Wisconsin Energy Corporation currently retains a Zacks #3 Rank
(short-term Hold rating).The company competes with
Xcel Energy Inc.
Based in Milwaukee, Wisconsin, Wisconsin Energy Corporation is
involved with the generation, distribution and sale of electric
energy and steam. It is also engaged in the purchase, distribution,
transportation and sale of natural gas.
WISC ENERGY CP (WEC): Free Stock Analysis
XCEL ENERGY INC (XEL): Free Stock Analysis
To read this article on Zacks.com click here.