5 South America Utility Stocks With Upside

NEW YORK (TheStreet) -- Centrais Eletricas Brasileiras (EBR), Companhia Energetica de Minas Gerais (CIG), Enersis (ENI), EDENOR (EDN), Empresa Nacional de Electricidad (Endesa Chile) (EOC) have a 25%-47% upside, based on analysts' consensus estimates of 12-month price targets.

These five utility stocks from South America have an average market capitalization of $10 billion. The selected stocks have stable cash flows and are less volatile, compared to stocks in other sectors. Earnings for these stocks are expected to average around 10%-12% in 2011.

The stocks delivered an average return of 12% in the last one year and have the potential to deliver attractive returns over the next one year. Analysts expect these stocks to have an upside of up to 47%. Besides, these stocks are less volatile compared to peers in other sectors.

5. Empresa Nacional de Electricidad (Endesa Chile) ( EOC) is a Chile-based company engaged in the generation and distribution of electric power. Chile-based utility major Enersis SA has a 60% stake in Endesa.

Along with subsidiaries, Endesa owns and operates 180 hydroelectric, thermal and wind power generating units with total installed capacity of more than 13 gigawatt.

At the end of December 2010 quarter, consolidated debt stood at $3.775 billion, down 9.5% year-over-year. Net revenue was up 1% year-over-year, while operating income declined 12% year-over-year during the same period. Soaring energy costs and higher fuel costs impacted operating income.

Of the eight analysts covering the stock, five rate a buy. Consensus estimates expect an upside of 25% over the next one year. The stock is trading at 12.2 times its estimated 2011 earnings.

4. EDENOR ( EDN) is the largest electricity distribution company in Argentina, in terms of number of customers and electricity sold. Edenor distributes electricity exclusively to the northwestern zone of the greater Buenos Aires metropolitan area and to the northern part of the city of Buenos Aires, which has 7 million population and an area of 4,637 sq. km.

Net sales were up 8.3% year-over-year during 2010 third quarter mainly because of higher volume of energy and capacity sold. Volume of energy sold increased 6% in the third quarter of 2010 due to higher consumption per customer. Gross margin rose during the quarter on higher volume of energy and capacity sold.

The stock delivered 55% gains during the last one year, and has 27% upside potential in the next one year, as per analysts' consensus estimates.

3. Enersis ( ENI) is a Chile-based company engaged in the generation, transmission and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru.

Operating through subsidiaries, Enersis had an installed capacity of 14,851 MW and supplied electricity to nearly 12.8 million customers, or approximately 45 million inhabitants.

In terms of operating profits, distribution and generation account for 45% and 55%, respectively. Chile and Columbia are major contributors to operating profit, representing an average 48% and 24%, respectively.

At the end of September 2010, revenue stood at $13 billion, with operating profit at $4.3 billion. Leverage declined to 0.97 for September 2010 from 1.07 for the whole of 2009.

The stock is trading at 11 times its estimated 2011 earnings and consensus estimates project 32% upside in the next one year.

2. Companhia Energetica de Minas Gerais ( CIG) engages principally in electricity generation, transmission and distribution.

During 2010 third quarter, net revenue and EBITDA for the same quarter were up 6% and 11%, respectively, beating the earlier year quarter. Inclusion of new assets and operational efficiency improved EBITDA margins. Net income rose 90%, compared to the second quarter of 2010.

Operating through its subsidiaries Gasmig and Infovias, the company distributes natural gas and is a telecommunications service provider. The company's power plants have total installed capacity of around 7,000MW, making it one of Brazil's largest electricity generators. CEMIG operates the largest electricity distribution network in the region, spread across 300,000 miles.

The stock gained around 12% in the last one year and is currently trading at 10.8 times its estimated 2011 earnings and is expected to deliver an upside of 42% in the next one year.

1. Centrais Eletricas Brasileiras ( EBR) is a Brazil-based holding company engaged in electric power generation and transmission.

The company and its subsidiaries are responsible for 37% of total generation capacity, through 29 hydroelectric plants, 15 thermoelectric plants and 2 thermonuclear plants. In the transmission segment, the company has around 60,000 kilometre (or 37,282 miles) transmission lines and 237 substations. The company is present in other South America countries, both in generation and transmission.

The stock appreciated 3% in the last one year. As per analysts' consensus estimates, the stock is expected to deliver 47% in the next one year. Data from Bloomberg has analysts giving 67% buy rating. The stock is trading at 9 times its estimated 2010 earnings.

>To see these stocks in action, visit the 5 South American Utility Stocks portfolio on Stockpickr.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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