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Copel Rated Neutral Again

Zacks Equity Research

Companhia Paranaense de Energia (ELP), also known as COPEL was once again rated Neutral by us, anticipating an in-line performance with the market.

The Brazilian electric utility is engaged in the generation, transmission, and distribution of electricity in the State of Parana. It sources 99% of its electricity from hydroelectric resources. Besides its core business, COPEL derives roughly half of its revenue by providing telecommunications, natural gas, engineering, water, and sanitation services.

In the years ahead, growth prospects look bright for Copel as revival in the global economy is inducing growth in emerging markets like Brazil. With electricity demand ever soaring in the country, investments are being made to improve Brazil’s infrastructure and power generation capabilities. Also, hosting of two major sporting events in the near future will be an added electricity demand booster.

Besides, the company’s focus on improving its internal generation capacity and distribution network is expected to retain its position in the Brazilian electric utility sector. For 2012, the company has allocated R$2.26 billion for its capital investment plans –roughly 47.4% for generation and transmission, 48.9% for distribution and 3.7% for telecommunications.

On the flip side, higher operating expenses remain a major cause of concern in the near term. Expenses soared 15% in the first quarter 2012 as against 8.5% recorded in 2011. Moreover, being a state-owned company, Copel’s decisions are subject to political interference and unfavorable regulatory system. Also, the company faces stiff competition from its peers like Cia Energetica de Minas Gerais (CIG) and Enersis S.A. (ENI).

The current Zacks Consensus Earnings Estimates for the fiscal years 2012 and 2013 are $2.33 and $3.04 per share, representing a year-over-year decline of 0.43% and growth of 30.47%, respectively.

The stock currently bears a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating.

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