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Cesp Declines to Four-Week Low as Credit Suisse Cuts to Neutral

Cia. Energetica de Sao Paulo, Brazil’s best-performing utility this year, sank as Credit Suisse Group AG cut it to the equivalent of hold, saying the stock’s value already reflects higher wholesale power prices.

The shares dropped 3 percent to 22.60 reais at the close of trading in Sao Paulo, the lowest since Sept. 4. The Ibovespa equity benchmark fell 1.1 percent.

Cesp, as the utility is also known, can sell its excess electricity into the daily wholesale market, earning profits in addition to those from power distributed under contract rates. The company has exceeded analysts’ earnings estimates in each of the past three quarters partly because of higher market prices, known as spot.

“After a period of undeserved skepticism, we believe the market is now fairly aware of the benefits of high spot prices for Cesp’s earnings,” Credit Suisse analysts including Vinicius Canheu wrote in a research note today. “Most of its room for earnings surprises is already reflected in the stock price.”

Credit Suisse cut Cesp from the equivalent of buy. The price target is 24 reais.

Even with today’s decline, Cesp shares are up 17 percent in 2013, the best performance among 16 members in the Bovespa Electric Energy Index, which is down 6.2 percent this year.

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