Allegheny Energy Inc.AYE

Morningstar Rating

Stock Research and Analysis

by Ryan McLean

After a few rocky years, Allegheny Energy's prospects have improved. We believe a transition to (higher) market rates, coupled with ongoing cost-containment, will help preserve and increase earnings even as the economic recession depresses demand for Read more

Bulls Say

A recovery in power prices could entail significant upside for the firm's unregulated generation division.

Allegheny generates more than 95% of its power from coal, allowing it to remain cost-competitive against competitors who are more reliant on natural gas.

If management achieves its operating expense target, the firm could see about $50 million in annual cost savings.

The firm recently restored dividend payments after a suspension lasting nearly five years, signaling its successful evolution toward financial health and profitability. Read more

Bears Say

Allegheny has not seen the same improvement in corporate governance as it has in its operations.

A heavy reliance on coal means the firm will have to make expensive environmental upgrades or purchase pollution allowances.

If management does not achieve anticipated improvements to plant utilization, earnings may fall short of expectations.

Near term demand weakness should counter some of the benefits of a transition to higher market rates. Read more

Strategy

On the regulated side, the company expects significant incremental revenue as it adds to both its regulated transmission and distribution assets. On the unregulated side, Allegheny is expecting a rise Read more

Management

Allegheny Energy lured Paul Evanson to the position of CEO in June 2003 from Florida Power & Light FPL, where he served as president for nine years. We think his leadership and commitment to cleaning up Allegheny's balance sheet has been, and will Read more

Profile

Allegheny Energy is an integrated utility providing energy distribution and electricity generation through its two business units. Delivery and services, the company's regulated Read more

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