Gabelli & Company Analyst Timothy Winter says he recently upgraded WEC Energy Group Inc (WEC) to a “buy” rating. He says the utility group is down about 15% from its highs in January.
“Well, WEC was down about 20%, and they are about ready to close an acquisition of Integrys Energy (TEG) out of Chicago, which is going to ramp up the earnings growth rate from 4% to 6%, to 5% to 7%,” Winter says. “We think that could be conservative.”
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The companies have contiguous service areas, so the acquisition will result in synergies, Winter says. Integrys has an electric and gas service area in the Green Bay, Wisconsin area, and they own a large gas distribution utility in Chicago.
“In addition, Wisconsin Energy had free cash flow that they had intended to buy back stock with,” he says. “Integrys has opportunities to invest in their infrastructure, primarily gas pipeline replacement in the Chicago area, so WEC can use its cash flow to invest in the pipeline replacement program and earn a return, which helps boost the earnings growth rate.”
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