PPL Corp. is a mix of safety and growth

Posted May 26th 2009 5:40PM by Joseph Lazzaro
Filed under: Stocks to Buy

Readers of this space know that one of the preferred sectors is the electric power generation sector.

And it's preferred for a reason that may not be obvious to all. Electricity via wind, solar, and nuclear generation is likely to play a large role in energy as climate change reduction, then elimination, becomes a societal goal. Electricity also remains a potential propulsion source for cars, particularly once oil resumes its inevitable climb. And with the above in mind, electric power generator PPL Corporation (NYSE: PPL) is worth a review.

PPL Corp. is another one of those otherwise admirable utilities which received no mercy from Wall Street during the Dow's 14,000 to 7,000 swoon. Wall Street took shares down from the $55-range to about $25 despite the fact that FY 2010 expiring energy contracts are likely to be replaced by contracts that are more-profitable to PPL. These days, given current economic conditions, a quarter is akin to being a year away, and a year is like being a decade in the future.

PPL's business model is solid: steady, if unspectacular growth in its regulated Pennsylvania power market (1.4 million customers), coupled with stronger growth in unregulated (though more risky) power markets. PPL hopes the increased use of power supply contracts of varying duration will lessen that unregulated market's risk. The First Call FY 2009/FY 2010 EPS estimates for PPL are $1.82 to $3.66.

Stock Analysis: PPL Corp. is a moderate-risk stock. Consider buying a 25% position in PPL now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your PPL position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.

- -

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: electricity, power company, PowerCompany, PPL, PPL Corp.