ARE UTILITIES STOCKS STILL MAKING WIDOWS AND orphans happy?
According to PaineWebber's report, Power Book, utility stocks "are likely to continue to lag the market." Of the 66 electric utilities surveyed, only 9 earned a "buy," or "1," recommendation, and six scored "unattractive," or a "4" rating (see table). The rest fell somewhere between, their stocks labeled either "attractive," or "neutral."
While a merger can bolster a company's potential, it isn't a sure bet. Cinergy Corp. (formed October 1994 when Public Service Company of Indiana and Cincinnati Gas & Electric merged) garnered a "1" for being one of the first companies to realize the need to consolidate in a competitive environment. Cinergy earned another feather for being a non-nuclear, low-cost producer; the company's average retail rate was 5.4 cents/kWh in 1997.
However, the "4" ratings given Centerior Energy and Ohio Edison did not change when the two companies merged to form FirstEnergy. Centerior brought weak finances and high competitive risk to the table; Ohio Edison offered a hemorrhaging industrial-customers base.