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, given that crude oil has apparently resumed its climb to uncomfortable levels. And with the above in mind, electric power generator Allegheny Energy (NYSE: AYE) is worth a review.
In general, analysts are impressed by both Allegheny's regulated and unregulated businesses.
The regulated business, Potomac Edison (which supplies power to portions of West Virginia, Maryland, and Virginia), will benefit from customer growth and a West Virginia rate increase.
Meanwhile, unregulated business revenue will fall somewhat in FY2009, but will later be offset by increased generating capacity, rate hikes for providers of last resort power in Pennsylvania, and other factors. The First Call FY2009/FY2010 EPS estimates for AYE are $2.36 to $2.69.
Analysts are also impressed by AYE's ability to improve plant performance and limit keep costs.
The risks include a failure of the U.S. economy to begin to recover in the second half of 2009, which would lower electric power demand.
Stock Analysis: Allegheny Energy is a moderate-risk stock. Consider buying a 25% position in AYE 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 AYE position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $12.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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