CEMIG Earnings Preview

| About: Companhia Energtica (CIG)

Companhia Energetica de Minas Gerais (NYSE:CIG), also known as CEMIG, is slated to release its fourth quarter and fiscal year 2010 results on Monday, March 28. The current Zacks Consensus Estimate for the fourth quarter is 32 cents, representing an annualized decline of 11.11%.

Third Quarter Highlights

CEMIG's third quarter results were disappointing as earnings per share of R$0.89 were below R$0.92 reported in the third quarter of 2009. Net income dipped 2.4% year over year to R$553.3 million ($314.4 million) due to higher operating and financial expenses. However, earnings per ADR were $0.51, above $0.49 in the third quarter of 2009 and the Zacks Consensus Estimate of $0.44 per ADR.

Net revenue jumped 6.5% year over year to R$3,183.2 million ($1,808.6 million) attributable to higher volumes sold. During the quarter, operating expenses soared by 6% year over year to R$2,208 million ($1,254.5 million).

Detailed discussion on the third quarter results can be found here: CIG 3Q Disappoints, Exceeds Estimate

Agreement of Estimate Revisions

In the last seven days, of the analysts providing estimates for the stock, none revised his estimates for the fourth quarter and fiscal year 2010 or for the fiscal year 2011. While considering the last 30 days, estimates for the fiscal year 2010 and 2011 were revised down by one analyst.

Magnitude of Estimate Revisions

Estimates over the last seven days remained intact for the fourth quarter of 2010 at 32 cents per share, representing a year-over-year decline of 11.11%. For fiscal year 2010, estimates remained stable at $1.36, down 11.11% year over year and for 2011 at $1.76, up 29.66% year over year.

While considering the last 30 days, estimates for the fiscal year 2010 fell by 2 cents to $1.36 and for 2011, decreased by 3 cents to $1.76 per share.

Our Take

CEMIG is one of the largest integrated electric utilities in Brazil, having more than 6,624 megawatts of installed generation capacity and deriving approximately 97% from hydroelectric power. We believe the company stands well positioned to benefit from the increasing electricity demand in Brazil.

However, results in the fourth quarter will be impacted by an increase in operating expenses and energy purchase costs. Besides, adverse effects can be expected from the tariff adjustment announced in 2010 and the rising debt levels.

Moreover, persistent interference from the state government, competitive pressures in the Brazilian market and high dependence on natural water resources tend to be problematic. Expecting the company to perform in line with the market, we maintain a Neutral recommendation on the stock.