6 Utilities to Light Up a Portfolio

NEW YORK (TheStreet) -- The AES Corp. (AES), Calpine (CPN), Covanta (CVA), Spectra Energy (SE), NRG Energy (NRG) and UGI (UGI) are six utility stocks that have 30% mean upside potential based on 12-month price target, according to analysts.

Sixty-two percent of analysts polled by Bloomberg affirm a buy rating for these stocks. Investors can also consider The Southern Company ( SO), Duke Energy ( DUK) and Dominion Resources ( D), which have appreciated 11% to 14% in the last year, however, these stocks have limited upside potential, as per analysts.

6. UGI ( UGI) distributes and markets energy products like natural gas, propane and butane, besides generating electricity.

Net sales for the second quarter of 2011 were $471 million, up 18.7% from $396.6 million in the year-ago quarter. Net loss stood at $7.2 million, vs. $3.4 million profit in the same quarter prior year as the weather nationwide was slightly warmer than normal.

On the third-quarter results, Lon R. Greenberg, CEO of UGI, said, "Improved results from our Gas Utility and AmeriGas were not enough to offset an $11.3 million decrease in earnings from our International Propane businesses resulting principally from extraordinarily warm spring weather in Europe."

He further added, "Given the negative impact of International Propane's results on our quarterly and year-to-date earnings, as well as our current assessment of business prospects for a seasonal loss in the fourth quarter, we now expect earnings per share of approximately $2.2 for the full fiscal year ending Sept. 30, 2011." The stock is trading at 12.7 times its 2011 earnings with an estimated 18% upside over the next 12 months, according to a consensus of analysts polled by Bloomberg. The company has buy ratings from 50% of analysts polled.

5. NRG Energy ( NRG) operates as a wholesale power generation company in the U.S.

During the second quarter of 2011, NRG reported net income of $621 million compared to $210 million for the same quarter last year. Adjusted earnings before interest, taxes debt and amortization was $517 million and cash flow from operations came in at $93 million.

The company will be executing solar rooftop generation projects and renewable energy projects in the future. The company's 200 megawatt Middletown peaker project, a 50:50 joint venture with The United Illuminating Company entered into commercial operations in June.

NRG repurchased $130 million worth shares during the first quarter of 2011 and intends to complete the remaining $300 million of share repurchase by the year end. The company has raised full-year 2011 adjusted EBITDA guidance to range from $1.9 to $2 billion. Analysts surveyed by Bloomberg project 20% upside over the next one year with 54% of analysts issuing buy ratings.

4. Spectra Energy ( SE) owns and operates natural gas-related assets in Ontario and natural gas processing services in Western Canada.

Net income saw a boost owing to higher Gulfstream earnings after the company acquired an additional 25% stake in Gulfstream during the fourth quarter of 2010. Spectra reported net income of $37.6 million for the second quarter of 2011 vs. $33.2 million in the same quarter previous year.

Cash available for distribution was $35.4 million for the quarter compared to $33.4 million in the second quarter 2010. "We ended the quarter in a strong financial position, which allowed us to fund the Big Sandy Pipeline acquisition on July 1, and at the same time, maintain ample liquidity to pursue future growth opportunities," Greg Rizzo, the company's CEO, said.

During the quarter, the company obtained new investment-grade credit ratings and completed its first-ever public debt offering, as well as a follow-on equity offering. Analysts surveyed by Bloomberg expect the stock to gain 9% over the next year. Buy ratings were issued by 57% of analysts polled.

3. Covanta Holding Corporation ( CVA) deals in the conversion of waste into energy and other related products in the U.S.

Adjusted EPS for the second quarter of 2011 was 14 cents, up from 11 cents in the corresponding quarter prior year. For the second quarter of 2011, operating revenue increased 5% to $411 million from $393 million in the comparable period in 2010. Adjusted EBITDA was $123 million.

During the second quarter, Covanta entered into a contract to sell its Madurai facility in India, the third of the four Asia independent power provider assets designated for sale. Sanjiv Khattri, Covanta's CFO, said, "We are on track to realize gross proceeds of $270 million to $290 million, assuming we successfully close all four asset sales. We have tax efficiently repatriated over $135 million of that amount and have been proactively returning this capital to shareholders."

For full-year 2011, Covanta estimates EBITDA in the range of $480 to $520 million. Analysts estimate the stock's average gains at 42% over the next year with 58% of analysts issuing buy ratings.

2. Calpine ( CPN) is a U.S.-based wholesale power company operating natural gas-fired and geothermal power plants in North America. The company emerged from Chapter 11 bankruptcy in 2008 and produced 20 million megawatt hours of electricity during the latest quarter.

Adjusted EBITDA for the second quarter of 2011 increased to $406 million from $381 million in the second quarter of 2010, driven in large part by a $69 million improvement in commodity margin to $602 million from $533 million in the corresponding quarter of 2010. Achieved highest second-quarter performance on record of over 98%.

The company closed project financing for construction of Russell City Energy Center in Hayward, Calif. The company in August announced it had secured a line of credit for an upgrade to its Los Esteros Critical Energy Facility in San Jose, Calif.

For full-year 2011, the company projects adjusted EBITDA to range from $1,700 million to $1,750 million. On average, analysts expect the stock to gain 42% over the next one year with buy ratings of 72%.

1. The AES Corporation ( AES) is a power company with global presence and owns a portfolio of electricity generation and distribution businesses in 28 countries.

EPS improved to 32 cents from 24 cents during the second quarter of 2010. On the earnings front, Paul Hanrahan, AES CEO, said, "Compared to the first quarter of this year, adjusted EPS growth reflects improvements in existing operations, as well as income from new construction projects and our recent acquisition in Northern Ireland. In addition, I am pleased with our recent progress on our remaining construction projects and we remain on track to achieve our 2011 guidance".

Consolidated gross margin came in lower at 22.5% compared to 25.5% in the second quarter of 2010 due to higher fixed costs in Latin America and lower volumes and spot prices at its Europe and Asia Generation businesses.

Consolidated revenue increased 16% to $4.5 billion in the second quarter of 2011 owing to favorable foreign currency impact, contributions from new businesses from Ballylumford in Northern Ireland, Angamos in Chile, Maritza in Bulgaria and growing demand at its Brazilian utilities. The company's earlier announced acquisition of DPL could be closed in the fourth quarter of 2011 or first quarter of 2012.

For full-year 2011, the company has guided EPS to range from $1.08 to $1.14. Analysts polled by Bloomberg project 54% upside over the next year with 83% of analysts issuing buy ratings. The stock is trading at 9.8 times its estimated 2011 earnings.

>>To see these stocks in action, visit the 6 Utilities to Light Up a Portfolio portfolio on Stockpickr.

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