Xcel Energy Evenly Poised - Analyst Blog

On Jun 12, we have issued an updated research report on Xcel Energy Inc. XEL. The utility operator is poised to benefit from large-scale investments directed primarily at generation, distribution and transmission operations. The company's CapX2020 transmission program has made excellent progress and it has already completed the 230-Kilovolt (Kv) transmission line in Minnesota.

These projects will offer substantial support to Xcel Energy's large-scale generation operations and help provide service reliability to customers.

However, coal still holds a major share in Xcel Energy's generation mix, which will make its coal-fired units subject to strict environment legislations. Moreover, rising operation and maintenance expense might limit the company's profitability.

Xcel Energy, a Zacks Rank #3 (Hold) stock, got off to a flying start in the first quarter of 2014 with both earnings and revenue beating the Zacks Consensus Estimates. The severe winter weather drove up power demand, which in turn boosted sales. On a year-over-year basis, quarterly top and bottom line also reported impressive growth.

The continued market optimism in Xcel Energy's service territories and positive rate revisions at its North Dakota and New Mexico service zones should support the company's revenue stream. In addition, Xcel Energy's series of clean energy projects will prove beneficial in the long run given the current pulse in the U.S. market favoring green energy.

The company expanded its renewable generation capabilities by 11% from 2005 through 2013 and further intends to broaden green generation's share to 27% by 2020.

Nonetheless, Xcel Energy needs to watch out for market price volatilities and operational risks associated with explosion, leak and mechanical setbacks at natural gas transmission and distribution operations.

Key Picks from the Sector

Other better-ranked utility players include NRG Energy Inc. NRG, Korea Electric Power Corp. KEP and Entergy Corp. ETR. All these stocks currently carry a Zacks Rank #1 (Strong Buy).

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