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Rare is the day that one should sell an electric power generation play. And the reasons are compelling: Electricity via wind, solar, and nuclear generation is likely to play a larger role in energy as climate change reduction, then elimination, becomes a societal goal. Electricity also remains a potential propulsion source for cars, given that oil has apparently resumed its climb to uncomfortable levels.
Hence, I'm Reiterating my Buy rating for electric utility Allegheny Energy, Inc. (NYSE: AYE), first recommended on May 30, 2009 at a price of $25.00.
Allegheny remains on-track for 3.0-3.5% revenue growth in FY2009, aided by customer growth in its regulated business, which also recently won a West Virginia rate increase. Further, assuming a U.S. economic recovery, FY2010 revenue growth should approach 5%. The First Call FY2009/FY2010 EPS estimates for AYE are $2.22 to $2.49.
Technically, AYE's stock chart does not reflect a great deal of optimism: it's meandered for about four months, straddling the 50-day moving average along the way. Still, given the relatively safety of AYE, and the potential upside, the risk/reward easily favors adding to/establishing a position at current levels, $25-28.
Stock Analysis: Allegheny Energy is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% 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 75% of your AYE position before December 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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