OGE Energy's Strong Investment Strategy to Drive Growth

On Aug 17, 2015, we have updated our research report on Oklahoma City-based public utility holding company, OGE Energy Corp. OGE.

OGE Energy's steady investments in infrastructure projects are in sync with its strategy of providing reliable services to its customers and meeting the increasing demand. Between 2015 and 2019, the company plans to spend a total of around $2.9 billion. For 2015, the company has allocated $600 million, which includes $310 million for base transmission, distribution and generation activities.

The company intends to complete 40 miles of transmission line from OG&E's Gracemont substation to an American Electric Power AEP companion transmission line to its Elk City substation by early 2018. In addition, the company plans to start several integrated transmission projects. The scheduled completion of these ventures will allow OGE Energy to increase its scale of operations.

The company continues to witness customer additions. A stable economy in Oklahoma will help drive the company's sales trajectory. In second-quarter 2015, the company's customer count increased by 9,000 from the prior-year quarter.

Apart from expanding traditional fuel-fired operations, OGE Energy's initiative toward pollution-free power generation is appreciable. The company is currently pursuing the installation of scrubbers at Sooner Units 1 and 2, and the conversion of two coal units to natural gas at the Muskogee generating stations. Moreover, the company is leveraging the topography of Oklahoma to develop wind-based energy assets.

The company plans to invest more than $1 billion between 2014 and 2019 for environmental compliance and plant modernization projects, all scheduled to be complete by Jan 2019.

However, OGE Energy's utility operations are subject to federal, state and local legislative requirements, as well as extensive environmental regulations. Change in the regulatory environment could impact the company's earnings. In addition, since natural gas prices are extremely volatile, any adverse change in prices could affect its midstream partnership, Enable Midstream Partners' performance.

OGE Energy's second-quarter 2015 earnings missed the Zacks Consensus Estimate and declined year over year due to lower revenues and higher operating expenses. Its top line also missed estimates in the quarter.

Currently, OGE Energy carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the utility space include Empresa Nacional de Electricidad S.A. EOC, sporting a Zacks Rank #1 (Strong Buy), and DTE Energy Company DTE, holding a Zacks Rank #2 (Buy).

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