The Zacks Analyst Blog Highlights: Edison International, McGraw-Hill, Quicksilver Resources, Linn Energy and Forest Oil

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Mar 19, 2013, 09:30 ET

CHICAGO, March 19, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Edison International (NYSE:EIX), McGraw-Hill Companies Inc. (NYSE:MHP), Quicksilver Resources Inc. (NYSE:KWK), Linn Energy LLC (Nasdaq:LINE) and Forest Oil Corp. (NYSE:FST).

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Here are highlights from Monday's Analyst Blog:

Edison Int'l Retained at Outperform

On Mar 14, we retained our Outperform recommendation on Edison International (NYSE:EIX) following its fourth-quarter results, where reported numbers comfortably beat the Zacks Consensus Estimates. This diversified utility presently carries a Zacks Rank #2 (Buy).

Why the Reiteration?

$1.76 $1.06 75 cents

Following the release of the fourth-quarter results, the Zacks Consensus Estimate for 2013 has gone up 7.3% to $3.51 per share as 4 of 7 estimates moved north. Moreover, the Zacks Consensus Estimate for 2014 has also increased 4.7% to $3.59 per share as 4 of 11 estimates were raised.

With its strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers. With a forward-looking regulatory backup allowing the utility to file its General Rate Cases for three years, Southern California Edison has witnessed a sharp rise in its regulated rate base in recent times. Over the past five years, the regulators allowed rate base of the utility to grow by a CAGR of approximately 11%.

In Dec 2012, the company raised its annual dividend from $1.30 per share to $1.35 per share. This comes to a very competitive dividend yield of approximately 2.87%. Going forward, with the management targeting to dish out 45% 55% of Southern California Edison's earnings as dividend, we see ample scope for dividend appreciation.

Edison Mission Group's future growth will come from improved performance in unregulated power generation and energy trading, higher price realizations, upcoming wind projects and a strong balance sheet with no significant near-term maturities.

Nat Gas Supplies Now Under 2 TCF

The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies on account of cold temperatures across the Midwest and Northeast parts of the country. Despite this drawdown, gas stocks continue to remain bloated, reflecting low demand amid robust onshore output.

About the Weekly Natural Gas Storage Report

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.

Analysis of the Data

Stockpiles held in underground storage in the lower 48 states fell by 145 billion cubic feet (Bcf) for the week ended Mar 08, 2013, higher than the guided range (of 133–137 Bcf drawdown) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (NYSE:MHP).

The decrease represents the 16th withdrawal of the 2012-2013 winter heating season after stocks hit an all-time high in early November last year. Moreover, the draw was significantly higher than both the last year's withdrawal of 66 Bcf and the five-year (2008–2012) average reduction of 74 Bcf for the reported week.

Following the past week's reduction, the current storage level – at 1.938 trillion cubic feet (Tcf) – is down 440 Bcf (18.5%) from the last year but is still 198 Bcf (11.4%) above the five-year average.

In fact, natural gas inventories in underground storage have persistently exceeded the five-year average since late Sep 2011 and ended the usual summer stock-building season of April through October at a record 3.923 Tcf (as of Oct 31, 2012).

A supply glut kept the natural gas prices under pressure during the couple of years or so, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remain robust, thereby overwhelming demand.

However, with the U.S. winter colder than the unusually warm last one, we are experiencing some balancing of the commodity's supply/demand disparity on the back of its more normalized use for space heating by residential/commercial consumers.

This, in turn, could improve the prices and buoy natural gas producers, particularly smaller players like Quicksilver Resources Inc. (NYSE:KWK), Linn Energy LLC (Nasdaq:LINE) and Forest Oil Corp. (NYSE:FST). With an improvement in the companies' ability to generate positive earnings surprises, they can then move higher from their current Zacks Rank #3 (Hold).

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