If dig deep at CPL website, and maybe the CIG website, you will see that The Brazil government is probably going to reduce their tarriff. (the profit they can make) This will apply to all Brazil electric utilities.
While digging deep you will also learn that not all their market is regulated. Brazil needs to expand it electrical infrastructure so I doubt they will impose a rate structure that would discourage that expansion. However, that is the biggest risk.
Sentiment: Strong Buy
From The Street report of 8/26. Explains some of the downside of CPL and the reason they downgraded this stock. Don't know if this will turnaround anytime soon:
CPFL ENERGIA SA' earnings per share from the most recent quarter came in slightly below the year earlier quarter. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, CPFL ENERGIA SA reported lower earnings of $1.49 versus $1.92 in the prior year. For the next year, the market is expecting a contraction of 45.6% in earnings ($0.81 versus $1.49).
The gross profit margin for CPFL ENERGIA SA is rather low; currently it is at 18.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.10% trails that of the industry average. Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, CPL has underperformed the S&P 500 Index, declining 11.52% from its price level of one year ago.
Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
It seems earning are down because they are adding capacity but revenues and cash flow is up. This company typically pays 100% of surplus cash in dividend. Where else can you get a 7% safe yield with such growth potential?
Sentiment: Strong Buy
I note that volume is not high, so this is not a rout. The utility sector at large seems to be in the doldrums. I think this is a safe investment, long-term. Sao Paulo is going to be there.