Northeast Utilities Held in Balance - Analyst Blog

On Jun 18, we have issued an updated research report on Northeast Utilities NU. The diversified utility firm's steady investment in organic growth projects, increase in customer counts, addition of renewable assets and payment of regular dividends are expected to boost future growth. However, volatility in fuel prices and stringent utility regulations might challenge the company in future.

Northeast Utilities, a Zacks Rank #3 (Hold) stock, reported impressive results in first-quarter 2014. Quarterly earnings and revenues surpassed the Zacks Consensus Estimates and improved from the respective prior-year figures. The outperformance was primarily driven by higher electricity and natural gas distribution volumes as a result of colder-than-normal temperature in the winter season.

Northeast Utilities continues to add new customers to its portfolio, mainly on the heels of improvement in employment rate and conversion of space heating systems to natural gas from oil. A steady increase in customer base is expected to boost the company's future cash inflows.

Northeast Utilities maintained a systematic organic expansion strategy. The company invested around $0.09 billion during first-quarter 2014 as transmission capital expenditure. Northeast Utilities has already completed its Greater Springfield Reliability Project and is currently constructing the Interstate Reliability Project. The company intends to invest around $7.6 billion between 2014 and 2017. Northeast Utilities' steady effort towards expansion of scale of operations will enable it to meet the increasing customer demand.

In addition, Northeast Utilities is expanding its renewable portfolio, primarily focusing on solar, wind and hydroelectric. The company's largest solar site at Massachusetts started commercial operations from Apr 2014. This initiative will enable Northeast Utilities to diversify its generation mix.

In addition to investing funds at several projects, Northeast Utilities' strong cash generation capacity enables it to share profit with its shareholders in terms of paying regular dividends. In the first quarter, the company distributed $118.5 million as dividends.

On the flip side, Northeast Utilities' operations are commodity price sensitive. An increase in price of fuel like coal, gas and other commodities could boost the company's operating costs.

Key Picks from the Sector

Some better-ranked stocks in the sector include Dynegy Inc. DYN, Entergy Corporation ETR and NRG Energy, Inc. NRG. All the stocks carry a Zacks Rank #1 (Strong Buy).

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