Analyst says some companies can benefit from green craze
NEW YORK—With electricity prices likely headed higher, shares of electrical equipment companies that capitalize on the demand for energy efficient products are likely to see gains, an analyst said Wednesday.
In a note to investors, UBS analyst Jason Feldman touted shares of Cooper Industries Ltd., Baldor Electric Co. and Itron Inc. as compelling investments as electrical utilities turn to greener methods of power generation.
"With higher electricity prices, growing demand for electricity, and declining capacity margins, utilities and electricity customers may have few alternatives but to increase their investment in energy efficiency initiatives," Feldman said.
Two major factors are likely to drive electricity prices higher, Feldman said, citing a published report by Thomas Doerflinger. First, increasing political opposition and fewer financing options for coal-fired power plants are likely to make this relatively inexpensive -- but high-pollution -- source of electricity less feasible.
Second, carbon cap-and-trade legislation is likely to pass in 2009 or 2010 that could lead to higher energy costs and make coal-fired power plants even less appealing.
These factors make companies that produce energy-efficient products more appealing investments, Feldman said. Cooper Industries, which makes electrical products and tools, is likely to benefit due to its exposure to the renewable energy power generation market, he said.
He reiterated his "Buy" rating and $58 price target on Cooper, implying the stock will gain 31 percent over its ending price Tuesday of $44.25. In afternoon trading Wednesday, the shares lost 54 cents to $43.71.
Baldor Electric, which makes industrial motors, power transmission equipment, drives and generators is also well positioned to capitalize on the energy efficiency craze, Feldman said. He called the company "one of the leading suppliers of energy efficient motors" and backed his "Buy" rating and $40 price target. That implies growth of 21 percent over the stock's Tuesday close of $33.07.
Baldor shares gained 9 cents to $33.16 in afternoon trading.
Lastly, the analyst touted meter reader-maker Itron as a strong investment, as its products facilitate communication between utilities and customers, allowing for lower power generating capacity.
Feldman rates Itron "Neutral," with a price target of $100. That projects growth of nearly 6 percent over its finishing price on Tuesday. The stock was recently down $1.56 to $92.95.
The Dow Jones U.S. Electrical Components and Equipment Index lost 76 cents to $156.17.
