During the first month of 2016 Wisconsin Energy Corporation (WEC) stock price made an impressive 8% move going from $51.3 to the current highs of $55.2 even though it was downgraded to Neutral by Goldman with a target of $56.
During the recent year WEC's stock performed very much at the same trend as did the other Utilities being highly impacted by the messages around the interest rate hike and the future Fed's actions. When examining the stock price performance during the recent year it is very clear that it has surpassed the performance of the Utilities Sector. While the Vanguard Utilities ETF (VPU) delivered a 4.6% return in the last twelve months, WEC delivered a 13.2% return.
There is no doubt that the stock in at a great momentum. Even though the company announced a managerial change where CEO Gale E. Klappa will step out in early May will be replaced by current president Allen Leverett the stock price has consistently pushed forward towards new highs.
The rally in the stock during the recent month indicates that investors most likely expect to see some good news in WEC's performance in Q4. The high expectations are driven by the recent bottom in Natural Gas price which was set in late Q4'15 and should have a positive impact on the company's cost structure as well as high expectations for the Full year 2016 Outlook which should be now based on the new merged company forecast, incorporating the acquired Integrys.
WEC is expected to report its Q4'15 Earnings on February 4th. The current Consensus is that the Q4'15 EPS would be at $0.64. In the recent year's Earnings days the company has beaten Analysts' expectations and the Earnings days were more volatile compared to the day before and the day after Earnings. Here is a summary of the recent four quarters trading ranges in the Earnings day, the day before and the day after. During the Earnings day the stock has traded at a range of 3-5% while in the day before or the day after the trading range was more moderate at 1-3%.
The interest rate expected hikes are a big deal for WEC due to its long term debt. In September 2015 the total long term debt of the company was at $8.7B. The total Equity for the quarter of September was $8.6B which led the Debt per Equity factor to land at 1.16x.
Investors should keep a close track of this indicator during the Q4'15 Earnings report to assess any significant change in long term debt. One needs to keep in mind that the long term debt at the end of 2014 was at $4.6B and therefore any hint of a change in interest rate in the approaching FOMC meeting should have an above-the-average impact on WEC's stock price.
Just recently the company declared its Q1'16 dividend at $0.495 per share. It is 8% higher compared to the previous $0.4575 quarterly dividend per share. Based on the $55 stock price and assuming four equal $0.495 dividends per share in 2016 it implies a 3.6% dividend yield.
The Technical aspect
Investors who are looking the generate a position in WEC should be aware that the recent rally in the stock got it very close to a resistance point at $56-57 and a potential short term pullback from these levels could be well taken.
The approaching March FOMC meeting and the discussions towards a potential second Interest rate hike could lead to a temporary drawback in the WEC stock's performance. A modest Q4'15 Earning release could be served as a trigger for a short term pullback as well.
The Current momentum could be halted at the levels of $56-57 with a technical correction down to the levels of $52-53.
Investors who are looking to generate a position in the company's stock should be aware of these events and probably wait for the expected pullback.
Disclosure: I am/we are long WEC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.