PPL Corp.: A promising utility at an attractive price

Posted Dec 1st 2009 5:30PM by Joseph Lazzaro
Filed under: Industry, Stocks to Buy

PPL Corp.'s (PPL) stock has continued to meander, following the buy recommendation on May 26, 2009 at a price of $32.15, but I'm reiterating the rating. Here's why:

PPL's business model remains 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 those unregulated market risks.

Higher financing and coal costs, combined with a decline in wholesale power prices, weighed on 2009 earnings, and no-doubt accounts for much of the stock's recent sluggishness. However, a recovery in electric power demand, and a resumption of household formation growth, points to a considerably stronger earnings performance in 2010. The First Call FY2009/FY2010 EPS estimates for PPL are $1.79 to $3.28.

Stock Analysis: PPL Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in PPL now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your PPL position before February 2010. 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, power company, PowerCompany