Risk, Reward Balanced at Xcel Energy - Analyst Blog

On Apr 17, we have issued an updated research report on Xcel Energy Inc. XEL. The U.S. utility company continues with its strategic investments to expand operations besides adding renewable assets. However, stringent government regulations and rising operating expenses might challenge the company's future results.

Xcel Energy, a Zacks Rank #2 (Buy) stock, reported a stable performance in fourth-quarter 2013. The company's top as well as bottom line surpassed the Zacks Consensus Estimate. Quarterly results also increased year over year, primarily on the back of a reduction in total interest charges and financing costs, rate hike at several of its service territories, and the favorable impact of colder weather on its natural gas business.

We appreciate Xcel Energy's consistent efforts to expand its existing infrastructure. The company plans to invest around $14.1 billion in the next five years.

We note that Xcel Energy continues to add electricity and natural gas customers. This trend is expected to continue in the future due to lower unemployment rates and a booming oil and gas industry.

Xcel Energy is currently pursuing several initiatives to cope with increasing customer demand. The company has already installed 230-Kilovolt (Kv) of transmission line in Minnesota and is constructing three 345-Kv transmission lines. The scheduled completion of these projects will enable the company to increase its service capacity.

In addition, Xcel Energy is focusing on expanding its renewable properties, primarily its wind and solar assets. In 2016, the company plans to add 1,900 megawatts MW of wind power and produce electricity from nine new farms in its portfolio. Xcel Energy submitted proposals to the regulators to add up to 150 MW of solar assets at its Upper Midwest service area by 2016. These initiatives will enable the company to diversify its generation portfolio besides meeting the government's renewable mandates.

We remind investors that Xcel Energy has a favorable liquidity position. As of Jan 28, 2014, the company had available liquidity of around $1.25 billion, including $3.4 million of cash and the balance available under its credit facilities. A favorable financial positon supports Xcel Energy's systematic capital investment program.

Xcel Energy's operations are however subject to federal, state, and local legislative requirements. Changes in environmental regulations could impact the company's financial results.

Key Picks from the Sector

Some other stocks looking good in the utilities industry include NRG Energy, Inc. NRG, Public Service Enterprise Group Inc. PEG and ALLETE, Inc. ALE. While NRG Energy and Public Service Enterprise carry a Zacks Rank #1 (Strong Buy), ALLETE holds a Zacks Rank #2 (Buy).