Cemig Downgraded to Underperform - Analyst Blog
July 02 2013 - 2:00PM
Zacks
We recently downgraded
Companhia Energetica de Minas Gerais (CIG), also
known as CEMIG, from Neutral to an Underperform recommendation.
Why the Downgrade?
Revival from the lows experienced due to the global crisis has
spurred demand for a better infrastructure and modernized
agricultural equipment. This in turn has made a few industries very
lucrative, including the electricity industry.
Emerging countries are progressing well on the recovery path.
Talking of Brazil, electricity demand in the country is on the
rise, especially when it is gearing up to host two major sporting
events in the coming years. The national agency has predicted a
consumption hike of about 4.5% in the 2011-2021 timeframe.
Government spending has been geared up to improve the
infrastructure in the electricity industry.
Despite compelling long-term growth prospects, concerns surrounding
Cemig have forced us to downgrade the stock. Rising cost of
services and operating expenses, governmental interference and
dependence on hydro sources for electricity pose serious threat to
growth. In the first quarter 2013, expenses grew by 7% year over
year and offset partially the revenue increase in the quarter.
Also, denomination of a portion of loans and financings in foreign
currency raises risks of higher financial expenses in the event of
devaluation of the Brazilian currency for Cemig.
The Zacks Consensus Estimate for Cemig is US$1.45 per ADR for year
2013 and US$1.33 per ADR for year 2014, representing a
year-over-year decline of 40.8% and 8.1% in 2014, respectively.
Other Stocks to Consider:
Cemig currently has an $8.8 billion market capitalization. Other
stocks to watch out for in the industry are Companhia
Paranaense de Energia (ELP) and CPFL Energia
S.A. (CPL), each with a Zacks Rank #1 (Strong Buy) while
ALLETE, Inc. (ALE) has a Zacks Rank #2 (Buy).
ALLETE INC (ALE): Free Stock Analysis Report
CEMIG SA -ADR (CIG): Free Stock Analysis Report
CPFL ENERGI-ADR (CPL): Get Free Report
COPEL-ADR PR B (ELP): Free Stock Analysis Report
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