One of the leading electric utilities of Brazil, Companhia Paranaense de Energia (ELP), also known as COPEL remained in a Neutral zone, as we maintain a Neutral long-term recommendation on the stock.
The company is engaged in the generation, transmission, and distribution of electricity in the State of Parana and sources 99% of its electricity generation from hydroelectric resources. The company also provides telecommunications, natural gas, engineering, water, and sanitation services.
The growth prospects of Copel look bright as revival in the global economy is inducing growth in emerging markets like Brazil. Of late, demand for electricity in Brazil is on the rise on the back of investments made to improve the country’s infrastructure and power generation capabilities. Moreover, hosting of two major sporting events in the near future will boost electricity demand.
In accordance with the company’srecently announced capital investment plans of approximately R$2.26 billion for the fiscal year 2012, roughly 47.4% will be spent on generation and transmission, 48.9% on distribution and 3.7% on telecommunications.
Despite bright long-term prospects, the company’s we believe near-term hurdles restrict our view on the stock. Operating expenses seem to be rising, registering a 2.5% growth in the fourth quarter of 2011. Moreover, being a state-owned company, Copel’s decisions are subject to political interference and unfavorable regulatory system. Also, the company faces stiff competition from its peers like Cia Energetica de Minas Gerais (CIG) and Enersis S.A. (ENI).
The current Zacks Consensus Earnings Estimates for the fiscal years 2012 and 2013 are $2.45 and $3.07 per share, representing year-over-year growth of 4.56% and 25.48%, respectively.
The stock currently bears a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating.
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