Wisconsin Energy Poised Evenly - Analyst Blog

On May 30, we have issued an updated research report on Wisconsin Energy Corporation WEC. The utility firm's steady investment in infrastructure development projects backed by strong financial position will enable it to meet the increasing customer demand. In addition, payment of dividend at regular intervals and effective share repurchase initiative will help to retain investors' attention on the stock.

Wisconsin Energy, a Zacks Rank #3 (Hold) stock, reported favorable results in first-quarter 2014. In the quarter, the company's earnings per share and revenues surpassed the Zacks Consensus Estimates and improved year over year. The outperformance was primarily driven by a rise in retail electricity and natural gas sales as a result of higher demand.

Wisconsin Energy is currently focusing on upgrading its aging distribution infrastructure along with building blocks, installing pipes, poles, wires and transformers at its delivery systems. In 2014, the company plans to invest $0.71 billion for the electricity and gas distribution projects. These initiatives will enable Wisconsin Energy to provide reliable services to its customers.

Wisconsin Energy continues to add new customers to its portfolio, primarily backed by gradual improvement in economic condition in the state of Wisconsin, switching to natural gas from propane and a drop in unemployment rate. A rise in customer counts and higher utility consumption are expected to boost the company's future revenues.

Wisconsin Energy continues to show its efficiency in terms of improving cash inflow. During first-quarter 2014, the company's operating cash flow increased 16.6% to around $0.39 billion from the prior-year comparable level.

In addition to utilizing funds at numerous infrastructure development projects, Wisconsin Energy follows several initiatives, including dividend payments and share repurchase program, to maximize shareholders' wealth. During the first quarter, the company repurchased 0.4 million shares worth $18.6 million and paid $88.1 million as common stock dividend.

On the flip side, we are concerned about strict environment regulations related to power generation. Recently, the Obama administration rolled out its plan to curb carbon emissions from power plants by 30% by 2030. The rule will probably come into effect next year. Wisconsin Energy generates a substantial portion of electricity from coal-fired operations. Implementation of the new regulations will increase Wisconsin Energy's operating costs, thereby affecting margins.

Key Picks from the Sector

Some better-ranked stocks in the sector include NRG Energy, Inc. NRG, American Electric Power Co., Inc. AEP and Alliant Energy Corporation LNT. While NRG Energy carries a Zacks Rank #1 (Strong Buy), American Electric and Alliant Energy hold a Zacks Rank #2 (Buy).