We have reiterated our Neutral recommendation on Northeast Utilities (NU) owing to the company’s mixed results in third-quarter 2012.
In the third quarter of 2012, the company’s earnings surpassed the Zacks Consensus Estimate whereas revenues missed the same. However, the company’s top- and bottom-line figures were ahead of the year-ago results primarily due to strong performance from the transmission segment related to the merger with NSTAR.
Like most of the utility providers, Northeast’s operations are also subject to the federal, state, and local legislative requirements. The regulators frequently alter and adjust existing rules. The companies’ incur significant costs related to the changes in existing compliances and addition of new laws.
We believe that the NSTAR-merger will allow Northeast to increase its scale of operations and widen customer base, which will subsequently enable it to achieve earnings growth in the long run.
As far as the company’s organic growth strategies are concerned, Northeast intends to invest $1.7 billion under its full-year 2012 infrastructure spending program for numerous expansion and development activities. These initiatives will allow the company to increase its transmission capacity, which will subsequently help to meet the rising customers’ demand. Later, this will provide the company attractive earnings and cash flow growth over the next couple of years.
The companies, which deal with transmission and distribution businesses, sometimes face several operational risks including breakdown, failure or damage of equipments or processes, accidents, natural calamities and labor disputes. We expect Northeast’s fourth-quarter and full-year 2012 financial performance to be, to some extent, negatively impacted by Hurricane Sandy.
Considering several positive and negative factors, Northeast has a short-term Zacks #3 Rank (Hold rating). One of its close peers NiSource Inc. (NI) has a short-term Zacks #4 Rank (Sell rating).
Hartford, Connecticut and Boston, Massachusetts-based Northeast Utilities provides energy delivery services to residential, commercial and industrial customers in Connecticut, New Hampshire and Massachusetts. With a market capitalization of $11.90 billion, the company has 6,063 full time employees.
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