Northeast Utilities Remains Neutral - Analyst Blog
April 17 2013 - 12:25PM
Zacks
We are maintaining our Neutral
recommendation on Northeast Utilities (NU). The
company currently has a Zacks Rank #2 (Buy).
Why the Reiteration?
The reiteration is primarily based on risks associated with
Northeast Utilities’ over-reliance on transmission and distribution
businesses, delay in several important projects, and stringent
regulations. However, we consider the company’s diversified asset
base and solid project pipeline as catalysts, which can mitigate
these negatives.
The performance of utility providers like Northeast Utilities
primarily depends on their ability to manage their transmission and
distribution businesses. Northeast Utilities’ regulated businesses
contributed substantially to its total earnings in 2012.
Transmission and distribution businesses sometimes face several
operational risks including breakdown and failure or damage of
equipments or processes, which affect the company’s operations and
increase operating costs.
On the positive side, Northeast Utilities completed its merger with
NSTAR in Apr 2012 and enjoyed related benefits in the fourth
quarter of 2012. The company’s quarterly revenues surpassed the
year-ago figure on the back of strong performance from its
transmission segment primarily driven by this merger. We believe
that the NSTAR-merger will allow Northeast Utilities to increase
its scale of operations and widen customer base.
As far as organic growth strategies are concerned, Northeast
Utilities invested $1.47 billion in 2012 under the infrastructure
spending program for its several expansion and development
projects. These initiatives will allow the company to increase its
transmission capacity, which will subsequently help to meet rising
demand. Later, this will provide the company attractive earnings
and cash flow over the couple of years.
Over the past two months, the Zacks Consensus Estimate for
first-quarter 2013 increased 1.6% to 65 cents per share. The Zacks
Consensus Estimate for full-year 2013 earnings currently stands at
$2.55 per share, up 12.06% year over year primarily attributable to
lower interest costs and operating and maintenance expenses.
Other Stocks to Consider
Other stocks from the industry that are presently performing better
include Brookfield Infrastructure Partners L.P.
(BIP), Empresa Nacional de Electricidad S.A. (EOC)
and Pike Electric Corporation (PIKE). All the
three stocks carry a Zacks Rank #1 (Strong Buy).
BROOKFIELD INFR (BIP): Free Stock Analysis Report
ENDESA-CHILE (EOC): Free Stock Analysis Report
NORTHEAST UTIL (NU): Free Stock Analysis Report
PIKE ELECTRIC (PIKE): Free Stock Analysis Report
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