We have reaffirmed our Neutral recommendation on Northeast Utilities (NU). The company currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
In first-quarter 2013, Northeast Utilities’ earnings per share and revenues surpassed the Zacks Consensus Estimates owing to a rise in retail electricity and natural gas sales volume, and strong contribution from all of its segments.
Northeast Utilities completed its merger with NSTAR in Apr 2012. The company enjoyed related benefits in the first quarter of 2013 with robust performance from both NSTAR Electric and NSTAR Gas Company. We believe that the NSTAR-merger will allow Northeast Utilities to increase its scale of operations and widen customer base.
The risks associated with Northeast Utilities’ over-dependence on transmission and distribution businesses and delay in several important projects, and stringent regulations, which led to the reiteration. However, we consider the company’s diversified asset base and solid project pipeline as future value drivers.
In first-quarter 2013, Northeast Utilities invested $0.4 billion for its several infrastructure development projects. These ventures will allow the company to increase its transmission capacity, which will in turn, help to meet rising demand while improving financial results.
Utility providers’ performance primarily depends on its ability to manage transmission and distribution businesses. Northeast Utilities’ transmission and distribution may sometimes face several operational risks including breakdown and failure or damage of equipments and processes due to severe weather conditions and natural calamities like hurricane and snowstorm. These factors may interrupt the company’s operations and increase operating costs.
Other Stocks to Consider
Other stocks from the industry that are presently performing better include Companhia Paranaense de Energia (ELP) and CPFL Energia S.A. (CPL) with a Zacks Rank #1 (Strong Buy), and ALLETE, Inc. (ALE) with a Zacks Rank #2 (Buy).
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