On Mar 7, 2014, we issued an updated research report on OGE Energy Corp. (OGE). Recently, the company posted strong fourth quarter 2014 results with the top and bottom line coming in above the Zacks Consensus Estimate.
The sales and earnings beat came on the back of higher megawatt-hour sales particularly to residential and commercial customers. A 27.5% drop in total operating expenses to $203.3 million further supported the bottom line.
OGE Energy is the largest electric utility in Oklahoma and a well-positioned regulated utility. As for the company’s strengths, its effort towards addition of new infrastructure, focus on renewable sources and addition of new customers are expected to boost future results. Last year, the company invested $797.6 million in capital expenditures and intends to spend $585 million this year. Of the total 2014 capital outlay, $360 million is apportioned for the base transmission, distribution and generation activities.
Apart from expanding traditional fuel-fired operations, OGE Energy is smart enough to leverage the topography of Oklahoma to develop wind-based energy assets. Presently, it has a robust wind power portfolio, including a 120 megawatt (MW) Centennial wind farm, a 101 MW OU Spirit wind farm, a 227.5 MW Crossroads wind farm and so on. In 2013, the company generated 7% of total electricity from wind-powered assets. The company’s focus on expanding the renewable generation portfolio will enable it to fulfill the U.S. government’s mandates.
Again, OGE Energy’s steady dividend payout history and dividend rate revision at regular intervals help it to retain investors’ attention in the stock. In Dec 2013, the board of directors of the company hiked the quarterly dividend rate by 7.8% to 90 cents per share.
However, OGE Energy’s utility operations are subject to federal, state and local legislative requirements, as well as extensive environmental regulations. Change in the regulatory environment could also impact the company’s earnings. Inability to comply with various laws and regulations and obtain fair and timely rate relief and requisite regulatory approvals could have an adverse impact on its future earnings growth.
OGE Energy holds a Zacks Rank #2 (Buy). Other players in the utility industry, which look more attractive at current levels, include Exelon Corporation (EXC), Otter Tail Corporation (OTTR) and Public Service Enterprise Group Inc. (PEG). All these stocks carry a Zacks Rank #1 (Strong Buy).