Enel Generacion Chile

Ticker: EOCC, Buy below $23.

Why I Would Buy

1.      Strong RoE – Enel Chile has generated double digit annual returns-on-equity during the past decade.

2.      Cheap – Trades at less than 9 times earnings.

3.      Dividend – Pays a 3+% dividend.

4.      Defensive Investment  – Regulated utility that generates and distributes power in large parts of Chile.

5.      Currency Diversification – Earnings are in Chilean pesos, this provides an hedge against the dollar via a relatively stable currency.  

 What Could Go Wrong

1.       Emerging Competition – Solar energy is emerging very strong in Chile with recent reports of surplus energy generation,  this could pressure Enel’s hydro-electric and coal-fired generation.

2.      Credit Ratings –  Credit ratings are on the lower side of investment grade (BBB+ by  Fitch and S&P).

3.      Controlling Interest  – Enel Italy owns 61% of this utility, interests of the parent may not always align with that of minority shareholders.

Disclosure: I am long EOCC, please read additional disclosures here before taking any action based on this post.

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