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COPEL Offers Solid Growth Potential, Runs Near-Term Risks

Zacks Equity Research

We have issued an updated research report on Companhia Paranaense de Energia ELP or COPEL on Nov 23, 2016. This fully integrated electric utility is engaged in the generation, transmission and distribution of electricity in the state of Parana. The company currently has a $2.1 billion market capitalization.

The stock currently carries a Zacks Rank #3 (Hold). COPEL has solid long-term growth potential, but the risks from near-term headwinds can restrict its growth momentum.

COPEL enjoys the benefits of a well-diversified business portfolio. Ending third-quarter 2016, the company directly served approximately 4.5 million customers in 395 municipalities and 1,113 localities. Electricity generation capacity is roughly 5,624 megawatt, 99% of which is hydroelectric. In addition to the core business, the company provides telecommunications, natural gas, engineering, water and sanitation services.

Huge investments have been planned by COPEL to increase its electricity production capacity as well as to improve and expand its other business operations. An investment worth approximately R$3.24 billion has been planned for 2016, including nearly 52.4% for the Generation and Transmission business, 19.4% for the Distribution business and 5.4% for the Telecommunications business.

However, COPEL is exposed to risks arising from higher costs, stiff competition, extreme dependence on water resources for electricity generation and governmental interference. In addition, high level of long-term debts, roughly R$6.8 billion at the end of the third quarter increases the company’s financial burden and impacts profitability.

Also, dealing with lawsuits is a risky affair for COPEL as any judgment passed against it might result in huge losses. Exiting the third quarter, COPEL maintained a provision for legal claims amounting to R$1.4 billion for cases considered as probable losses. The company also had cases worth R$2.6 billion, already classified as possible losses.

Stocks to Consider

Some better-ranked stocks in the electric utility industry include Ameren Corporation AEE, Avista Corp. AVA and CenterPoint Energy, Inc. CNP. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameren Corporation posted better-than-expected results in the last quarter, with a positive earnings surprise of 10.14%. Also, earnings estimates for 2016 have been revised upward over the past 60 days.

Avista Corp’s earnings estimates for 2016 have been revised upward in the last 60 days.

CenterPoint Energy, Inc. reported better-than-expected results in three out of last four quarter. Average earnings surprise is a positive 5.07%. Also, earnings expectations for 2016 and 2017 have improved over the past 60 days.

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