On Jul 5, 2014, Zacks Investment Research upgraded Wisconsin Energy Corporation (WEC) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Wisconsin Energy reported positive earnings surprises in the past four quarters with an average earnings beat of 9%. The company’s long-term expected earnings growth is pegged at 5.5%.
Wisconsin Energy is continuously adding new customers to its portfolio. Gradual improvement in economic condition in Wisconsin, a decline in unemployment rate and switching to natural gas from propane increased customer count. This will likely enhance the company’s future performance.
Wisconsin Energy is focusing on upgrading and strengthening its aging distribution infrastructure. The company intends to invest $3.2 - $3.5 billion as capital expenditure between 2014 and 2018. Of which, $0.71 billion is expected to be allocated under the electricity and gas distribution projects for 2014. Wisconsin Energy is currently in the middle of its Oak Creek expansion unit project and started construction of a new powerhouse at the Twin Falls hydroelectric site. These initiatives will enable the company to meet governments’ environmental regulations in terms of reducing carbon emissions.
Wisconsin Energy inked a definitive agreement with Integrys Energy Group, Inc. (TEG) to acquire the latter for $9.1 billion. The combined entity will be named WEC Energy Group, Inc. Subject to customary approvals, the deal is expected to close in the summer of 2015. Wisconsin Energy had a stable liquidity position, which it can utilize to fund the acquisition.
As both Wisconsin Energy and Integrys Energy have similar lines of operations and a complementary footprint, the combined entity will be able to meet the increasing utility demand in the region.
Apart from investing in several projects, Wisconsin Energy also utilizes funds to improve shareholder value through paying regular dividends and pursuing an effective share repurchase program. The board of directors has authorized management to repurchase up to an additional $300 million of Wisconsin Energy common stock between 2014 and 2017. During the first quarter, the company paid $88.1 million as common stock dividend and repurchased shares worth $18.6 million. The company had current annual dividend yield of 3.5%, significantly higher than the industry average.
Other Stocks to Consider
Some other stocks worth considering in the utility industry include Alliant Energy Corporation (LNT) and NRG Energy, Inc. (NRG). Both the stocks carry a Zacks Rank #1 (Strong Buy).