We maintain our Neutral stance on Pepco Holding Inc. (POM) as the company and its subsidiaries are subject to regulation by various federal, state and local regulatory agencies, which can significantly impact operations. The financial result of the company depends on the treatment it receives from these regulators.
The positive catalysts of Pepco Holdings lie in its stable customer base and high priced contracts, and the improving fundamentals at its core regulated gas and electric utility operations. The regulated rate base and the disposal of non-core generating assets will also add to the growth dynamics.
Despite the positives we reiterate our bearish stance on Pepco Holding due to seasonality of the Power Delivery business and the retail energy supply business of Pepco Energy Services, plus the cost of complying with new environmental laws, including laws relating to emissions of greenhouse gases that can significantly increase the operating costs of the company.
We also factored in the uncertainties involved in the financial market while reinstating our neutral stance. Pepco Holdings and it subsidiaries depend to a large extent on the capital markets and bank financing to satisfy their capital and liquidity requirements. Inability to obtain the required financing would have an adverse effect on their businesses.
Looking Ahead at 2011
Pepco Holdings expects earnings per share for 2011 to be in the range of $ 1.10 to $ 1.25. The guidance excludes the impact of discontinued operations and assumes normal weather during the year. The Zacks Consensus Estimate is presently at $ 1.20 per share, near the higher end of the guidance range.
Pepco Holdings currently retains a Zacks #3 Rank (short-term Hold rating). The major peers of the company are FirstEnergy Corp. (FE) and Constellation Energy Group, Inc. (CEG).
Based in Washington, District of Columbia, Pepco Holdings, through its two operating divisions, Power Deliver and Competitive Energy, involves in transmission and distribution of electricity, as well as delivery and supply of natural gas.
CONSTELLATN EGY (CEG): Free Stock Analysis Report
FIRSTENERGY CP (FE): Free Stock Analysis Report
PEPCO HLDGS (POM): Free Stock Analysis Report
Zacks Investment Research
Be the first to comment