We have issued an updated research report on Companhia Paranaense de Energia ELP or COPEL on Dec 21, 2015. Despite solid long-term fundamentals, exposure to headwinds has restricted the company’s growth momentum in the near term.
COPEL, one of the largest integrated electricity utilities in Brazil, has a generation capacity of roughly 5,638 megawatt (MW), of which 99% is hydroelectric. In addition to its core operations, the company is involved in telecommunication business and has interests in energy, gas, sanitation and service sectors. Also, the company’s Copel Renovaveis unit manages its investments in renewable energy generation projects.
We believe that growing infrastructural developments in Brazil will call for increased electricity supply, which will boost COPEL’s business in the quarters ahead. To leverage this situation, COPEL is diligently working toward improving its generation capacity as well as services, having planned investments of R$2.5 billion for 2015.
However, risks arising from higher costs, huge debt levels and dependence on water resources pose serious threats to COPEL’s growth in the near term. Exiting third-quarter 2015, the company had a long-term debt balance of R$6.5 billion, which inflated its financial obligations.
Moreover, being a state-owned entity, governmental interference causes delay in execution of COPEL’s regular operations. Further, the company’s huge dependence on rainwater to source majority of its hydroelectric power can pose risks in the event of unpredictable, lower-than-average rainfall.
With a market capitalization of $1.6 billion, COPEL presently carries a Zacks Rank #3 (Hold). The above-mentioned positives and negatives justify the stock’s investment value. On the other hand, the company’s competitors continue to perform better, having gained high investment rankings. Such stocks include Korea Electric Power Corp. KEP, Exelon Corporation EXC and FirstEnergy Corp. FE. While Korea Electric Power sports a Zacks Rank #1 (Strong Buy), both Exelon Corporation and FirstEnergy carry a Zacks Rank #2 (Buy).
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