On Sep 5, we have issued an updated research report on Xcel Energy Inc. (XEL). The company’s stable financial position and systematic capital investment strategy are expected to boost the company’s forthcoming performance. In addition, payment of dividends at regular intervals is appreciable. However, stringent environment regulations, over-dependence on weather patterns and several operational risks could act as growth deterrents.
This Zacks Ranked #3 (Hold) stock’s second-quarter 2014 earnings missed the Zacks Consensus Estimate while revenues beat the mark. On a year-over-year basis, the bottom line decreased primarily due to higher expenses. However, quarterly revenues saw an uptrend on the back of increased electricity and natural gas returns.
Xcel Energy maintains a steady financial profile with total available liquidity of approximately $1.5 billion. The company’s operating cash flow in the first half of 2014 was around $1 billion. A favorable financial position will allow the company to follow its capital spending program.
Xcel Energy continues to invest in its several transmission, generation and distribution projects. For the next five years, the company plans to spend nearly $14.1 billion. As of Jun 30, 2014, Xcel Energy invested $0.82 billion on five transmission projects under its CapX2020 program. To focus more on transmission ventures, the company recently formed two TransCos – Xcel Energy Transmission Development Company, LLC and Xcel Energy Southwest Transmission Company, LLC.
Apart from utilizing funds for growth ventures, Xcel Energy’s strong cash generation capacity enables it to share the profit with its shareholders in terms of paying regular dividends. This initiative will help the company attract more investors to the stock.
On the downside, the U.S. administration’s stringent regulations on environmental issues are our major concern. In Jun 2014, the U.S. Environmental Protection Agency proposed the Clean Power Plan to curb carbon emissions from the power sector by 30% by 2030 from 2005 levels. Though Xcel Energy is currently following several initiatives to diversify it generation mix, coal remains its primary fuel for generating power. If the proposal is approved as it is, Xcel Energy will have to invest more to cut pollution from its power generation facilities. This will likely increase the company’s operating costs.
Key Picks from the Sector
Other better-ranked stocks in the sector include ALLETE, Inc. (ALE), CMS Energy Corporation (CMS) and Consolidated Edison, Inc. (ED), each with a Zacks Rank #2 (Buy).
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