For Immediate Release
Chicago, IL – November 21, 2011 – Today, Zacks Equity Research discusses the Alternative Energy, including CPFL Energia S.A. (NYSE:CPL - News), AES Corporation (NYSE:AES - News), Cleco Corporation (NYSE:CNL - News) and Duke Energy Corporation (NYSE:DUK - News).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/64949/Alt-Energy+Stock+Outlook+–+November+2011
Historically, the growth outlook of alternative energy companies has been inversely related to the prices of petroleum products and directly related to the fortunes of the economy. In the near term, however, the fortunes of the alternative energy players are undergoing a radical transformation.
On one hand, the continuing European debt crisis has led to the U.S. Federal Reserve reducing its growth forecast, raised projections for unemployment and leaning on buying more mortgage debt to tide over a troubled economy.
The U.S. economy was not able to completely shake off the negative momentum that plagued it in 2010. In the first nine months of 2011, the economy was affected by unseasonal and harsh weather, heightened uncertainty spawned by the crisis in the Eurozone, a drop in federal defense purchases, and the supply-chain disruptions associated with the Japan quake and ensuing crisis.
As a result the U.S. jobless rate rose to 9.0% in October 2011. Going forward, Zacks expects unemployment rate for fiscal 2012 and 2013 at 8.9% and 8.4%, respectively. U.S. Federal Reserve also raised its projections for unemployment. This has led to implementation of Operation Twist (sterilized large-scale asset purchases) by Fed to lower rates.
As the Fed sells shorter-dated assets and uses the proceeds to buy longer-dated securities, effectively removing duration from the market, longer-dated yields will be kept lower than would otherwise be the case. As a result, we now expect the 10-year Treasury note yield to hover around 2.8% in fiscal 2012, reflecting both persistent flight-to-quality effects and the impact of Operation Twist.
We expect the Euro-area crisis to continue to cast a spell over financial markets. The heightened uncertainty may contribute to sharply lower equity prices and wider risk spreads. This we invariably feel will lead to slow consumer spending and the general pull-back from risk may yet manifest itself in hiring and capital expenditure decisions.
This would not be a welcome environment for alternative energy players who in recent times have been reeling under weak demand owing to the supply glut. Faced with struggling economies, regulators in Europe and U.S. may opt to be tight-fisted over spending on alternative energy projects.
On the other hand, steadily rising oil prices and China’s new solar power tariff regime is a clear pointer for investors to look beyond the near-term earnings horizon for healthier performance. The U.S. Energy Department in its monthly Short-Term Energy Outlook for November increased its crude-oil price forecast for 2011 by 1.6%. The agency now expects that the West Texas Intermediate oil will average $93.80 a barrel in fiscal 2011, up from the October projection of $92.36.
As a result, we believe that the oil price upside will only boost the emerging positive alternative energy narrative.
According to the European Photovoltaic Industry Association (:EPIA), the world industry association for solar photovoltaic electricity market, based on a study looking at five major solar markets -- Germany, Italy, France, Spain and Britain -- power generated from solar modules in Europe could be competitive in relation to conventional forms of energy by the end of the current decade.
A number of traditional utility companies have growing alternative energy operations. But the fortunes of some of these companies, particularly those with significant fossil-fuel exposures, are less attractive than their peers.
Favorable rate cases and stable sales growth in the respective service areas make companies like CPFL Energia S.A. (NYSE:CPL - News), AES Corporation (NYSE:AES - News), Cleco Corporation (NYSE:CNL - News) and Duke Energy Corporation (NYSE:DUK - News) attractive.
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