Vive La Suez SA!

May.23.07 | About: Suez ADS (SZEZY)

Named after the canal built by the French so long ago, Suez SA (NYSE:SZE) has recently merged with Gaz de France, which is controlled by the French government.

This merger creates a very large company that offers key services in France and around the world. Suez has always operated in the energy field, through electricity generation and gas supplies, and it also offers water distribution and waste-management services.

These essential services have made for reliable revenues, and Suez hopes to increase its profits through its post-merger economies of scale and by cutting costs. The latter goal may be difficult in a European economy that features strong unions and a public that is eager to protect workers. The French government will probably also apply pressure to keep prices low, which may also dampen profits.

Despite these concerns, I think Suez is a good bet. It's strong in the liquefied natural gas [LNG] markets and is already servicing the North American market. Given that LNG supplies have dropped among North American providers, Suez stands to enjoy strong profits from its North American operations. One also has to wonder whether the recent election of Nikolas Sarkozy, who is much more of a free-market supporter than Jacques Chirac, will also give Suez a bit more room to increase its profitability.

In any case, I like the regular revenues that Suez generates, and I believe the merger with Gaz de France will indeed enable SZE to deliver greater profits through economies of scale.

Type of stock: A French energy and water-services company that delivers regular revenues and stands to benefit from a recent merger and the surge in global infrastructure development.

Price target: SZE's stock price has been rising pretty steadily for the past year and is currently just off its 52-week high of around $58. I'd be leery of buying right now, but if you see this drop below $55 I think you'll enjoy its steady growth for years to come.

SZE 1-yr chart: