Electric utility PPL Corporation (PPL) announced that it will sell its interest in certain non-core generating stations to LS Power Equity Advisors, an affiliate of LS Power, for $381 million in cash. The transaction, which is expected to close in the fourth quarter of 2010, is subject to regulatory approvals and third party consents.
 
The non-core generating assets earmarked for sale are two natural gas-fired facilities – PPL Wallingford Energy plant and  PPL University Park plant – and a one-third share in the 421 megawatt Safe Harbor Hydroelectric Station on the Susquehanna River in Conestoga, Pennsylvania. The PPL Wallingford Energy plant in the Town of Wallingford, Connecticut and the PPL University Park plant in University Park, Illinois have operating capacities of a respective 244 megawatt and 585 megawatt.
 
The decision to offload the non-core assets did not come as a surprise as PPL Corporation was evaluating the possibility to shed some of its non-core assets to generate funds to support its E.ON U.S. acquisition. During the second quarter and early third quarter 2010, the company sold several load-following contracts to raise additional cash to fund the said acquisition.
 
Following the asset divestiture, PPL Corporation will continue to operate its generating plants in Pennsylvania and Montana, which has a combined production of about 11,000 megawatt. This deal might result in an after-tax, special-item charge of $65 million to $80 million incurred in the third quarter of 2010.
 
The adjusted earnings of PPL Corporation at the end of the second quarter 2010 were 62 cents per share compared with a net loss of 32 cents per share in the year-ago comparable period. The Zacks Consensus Estimates for third quarter 2010, fiscal year 2010 and fiscal year 2011 are 73 cents per share, $2.81 per share and $2.91 per share, respectively.
 
PPL Corporation currently retains a Zacks #4 Rank (short-term Sell rating). The nagging pressure on the company’s hedges and the expectation of higher coal transportation costs will likely weigh on future earnings. Hence, we maintain an Underperform rating on the stock.
 
LS Power is a power generation and transmission group, involved in the development, construction, and operations of over 20,000 megawatt of power generation throughout the United States.

 
PPL CORP (PPL): Free Stock Analysis Report
 
Zacks Investment Research