On Dec 11, 2014, we issued an updated research report on Companhia Paranaense de Energia (ELP) or COPEL.
COPEL is one of the largest companies in the Brazilian electric utility industry. The company has a generating capacity of roughly 5,454 megawatt (MW), 99% of which is hydroelectric. It owns 20 power plants, including 18 hydroelectric, 1 thermal and 1 wind plant, directly serving approximately 4.3 million customers across 395 municipalities and 1,113 localities.
The Brazilian electric utility is also making all possible efforts to enhance its electricity generation capacity. For this purpose, an investment worth R$2.6 billion has been planned for 2014. In addition, the company is working toward expanding its business not only in Parana but also in regions where it is engaged in other projects.
Notwithstanding these long-term growth prospects, COPEL is exposed to certain near-term risks that restrict its growth momentum. Huge debt levels as well as rising costs and expenses are detrimental to its profitability. In the first nine months of 2014, the company’s costs and expenses soared 465%, while its debt levels were as high as R$4.4 billion.
Moreover, being a state-owned company, governmental interference causes delay in the execution of COPEL’s regular operations. Further, huge dependence on rainwater to source majority of its hydroelectric power becomes risky for the company in the event of an unpredictable, lower-than-average rainfall.
A brief snapshot of third-quarter 2014 results is provided below:
COPEL’s third-quarter results fared no better than the previous quarter. Net income declined 14.5% year over year with earnings coming in at $0.18 per ADS. Revenues grew 45.8%, supported by an increase in electricity sales to final customers and distributors, among others. However, top-line growth was more than offset by a 51.7% increase in operating costs and expenses.
With a market capitalization of $3.4 billion, COPEL presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the electric utility industry include Black Hills Corporation (BKH), PG&E Corporation (PCG) and The Empire District Electric Company (EDE). While both Black Hills Corporation and PG&E Corporation sport a Zacks Rank #1 (Strong Buy), The Empire District Electric Company carries a Zacks Rank #2 (Buy).
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