Neutral Stance on OGE Energy

Zacks

We have maintained our Neutral recommendation on OGE Energy Corp. (OGE) on Sep 4, 2013 based on a strong Oklahoma economy and ongoing infrastructure improvement programs. However, these positives are partly tempered by instability at the commodity business and the unfavorable environment.

Why the Reiteration?

OGE Energy is the largest electric utility in Oklahoma, and its well-positioned regulated utility and unregulated midstream gas businesses carry low risk.

The company is pursuing an aggressive energy efficiency program, investing in renewable energy technologies and upgrading its infrastructure. The company is focused on developing renewable energy projects and upgrading its distribution system. Recent investments have positioned the company well to comply with environmental regulations and to meet its long-term earnings per share growth target of 5%–7%. Moreover, the recently formed midstream master limited partnership would help the company in achieving better results.

OGE Energy operates in Oklahoma, where unemployment is significantly lower than the national average. The resilience in the economy of its service area bodes well for the company. Also, its midstream assets are strategically located to benefit from strong gas production growth in Oklahoma and the Texas panhandle. Looking forward, lower-than-average electricity rates provide the company with significant scope for growth.

Despite these positives, weak second quarter results, volatility in its commodity business, pending regulatory cases, costs for the Oklahoma tornado restorations and the unfavorable macro backdrop keep us concerned.

Other Stocks to Consider

OGE Energy presently retains a Zacks Rank #3 (Hold). However, stocks that are worth considering in the space are Huaneng Power International, Inc. (HNP), IdaCorp, Inc. (IDA) and Integrys Energy Group, Inc. (TEG), all with a Zacks Rank #2 (Buy).

Read the Full Research Report on OGE

Read the Full Research Report on TEG

Read the Full Research Report on IDA

Read the Full Research Report on HNP

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