IdaCorp: Fuel Cells and Power

02/14/2003 12:00 am EST

Focus:

Roger Conrad

Founder and Chief Editor, Capitalist Times

"The panic level has ratcheted up again in the utility industry, in the wake of recently announced dividend cuts among several major utilities," notes Roger Conrad, editor of The Utility Forecaster. Here, the advisor suggests a utility that is now a buy recommendation for growth, value, and income.

"I am recommending IdaCorp (IDA NYSE), despite the fact it didn't earn its dividend in the fourth quarter and won't in all likelihood do so in 2003, either. The clear strengthening of the utility operations and the unwinding of unregulated power trading point to continuing recovery for the company. In addition, S&P continues to rate both the parent company and the Idaho Power utility unit at A-, with a positive credit outlook. It's one of only three energy utilities whose credit prospects are rated positive, and the only one that produces power. In my view, the stock is already pricing in a dividend cut, so it shouldn't dip much if there is one. Also, management has maintained the current payout in previous hard times. Either way, I think it's a value, as well as one of the lowest-risk ways to play the development of fuel cells thanks to its proprietary patented fuel converter, which extracts hydrogen from a wide range of potential fuels.

"At the core of the IdaCorp system are hydroelectric dams on the Snake River. The company has historically supplemented its output with low-cost coal-fired plans, selling the excess power during good water years. As California and other Western states deregulated, the utility added gas-fired merchant power capacity, which it marketed through a trading subsidiary. That strategy proved successful until last summer, when collapsing wholesale power prices triggered losses. Management immediately halted expansion plans and began a two year withdrawal from the business. Last month's settlement of a long simmering dispute with Trukee, California, over a power contract is another big step in that direction. In my opinion, the elimination of trading losses, recovery in utility operations and possibly some gains from fuel cells will trigger a big recovery in 2003 and beyond. IdaCorp is a buy up to $27. Those who don't own it, should pick up some shares now."

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