On Sep 16, Zacks Investment Research downgraded WEC Energy Group, Inc. WEC to a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the current quarter decreased 5% to 57 cents as two estimates moved south over the last 60 days.
Why the Downgrade?
Despite investing substantially in the installation of pollution control equipment, and in the conversion of fuel source to natural gas from coal and retiring certain units, coal remains the primary fuel for power generation at WEC Energy. Even though the company has lowered its carbon emission levels by 23% over the last 15 years, coal still accounts for 50% of the total power generated.
Note that the Environmental Protection Agency’s Clean Power Plan requires the state of Wisconsin to curb carbon emissions by 41% and two-thirds of this target must be achieved by 2022. However, the installation of low-emission infrastructure at generation systems to meet regulatory requirements increases the cost of operations for coal-based utilities in the state.
Further, WEC Energy is a holding company with no operations of its own, which means that its ability to meet financial obligations and pay dividends on the common stock is completely dependent upon the ability of its subsidiaries to provide dividends or other payments.
On the other hand, ability of its subsidiaries to make these payments is contingent upon their earnings, cash flows, capital requirements and general financial condition, as well as regulatory limitations. So any decline in contribution from its subsidiaries will adversely impact the financial performance of the company.
Key Picks in the Sector
A few better-ranked stocks to consider in the same space include Spark Energy, Inc. SPKE, Korea Electric Power Corp. KEP and DTE Energy Company DTE. While Spark Energy sports a Zacks Rank #1 (Strong Buy), both Korea Electric Power and DTE Energy carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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