September 28, 2010

CPFL Energia SA
NYSE: CPL - Electric Utilities

Grade Earnings Quick Facts

77.0 Last Earnings Release

Last Qtr. Actual vs. Est.

08/12/2010 Dividend Yield

$1.34 / $1.31 52 Wk High

7.36%

$76.70

Next Release 11/10/2010 N/A 52 Wk Low $52.28

$68.59
09/27/2010
Year Ending 12/31/2011 $5.08 Short Interest 0% of float
Rated 'BUY' since Nov 13th, 2009, when it
Year Ending 09/30/2010 $1.38 Market Cap $11.0B
was upgraded from 'HOLD'

Overview
Company Scores Very Good Fundamental Grades
MarketGrader currently has a BUY rating on CPFL
Energia SA (CPL), based on a final overall grade of 77.0
scored by the company's fundamental analysis. CPFL
Energia SA scores at the 98th percentile among all
5721 North American equities currently followed by
MarketGrader. Our present rating dates to November
13, 2009, when it was upgraded from a HOLD. With an
overall grade of 77.0, CPFL Energia SA is the highest
graded company in the Electric Utilities sub-industry,
followed by Cleco Corp (CNL), with an overall grade of
74.9. The stock, up 11.61% in the last six months, has
outperformed both the Electric Utilities group, up 3.0%
and the S&P 500 Index, which has returned -2.5% in the
same period. Please go to pages two and three of this
report for a complete breakdown of CPL's fundamental
analysis.

Price, Rating and Sentiment History - 2 Years

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 September 28, 2010

CPFL Energia SA
NYSE: CPL - Electric Utilities 77.0
While Not Entirely Negative, Growth Indicators Show Several Signs of
Growth B- Weakness
CPFL Energia traditionally healthy sales growth appears to have virtually
Market Growth LT D
ground to a halt during its most recent quarter, in which it booked $2.22
billion in total revenue. This represents a decline of 1.98% relative to the
Market Growth ST D
year earlier revenue of $2.26 billion for the comparable quarter. This drop
Dividend Growth contrasts to the 47.52% increase in the company's 12-month trailing
A+
revenue over a three year period. CPFL Energia had a total of $9.71
EPS Growth A+
billion in 12-month trailing revenue up to--and including--its latest quarter
compared to the $6.58 billion it reported for the equivalent period ended Revenue Qtrly. 06/30/2010 $2.2B
Earnings Impact C
three years ago. This reversal suggests a very rapid deterioration in the Revenue Qtrly. Year Ago $2.3B
company's business which, based on the company's past performance Revenue 1 Yr. Chg. (1.98%)
Earnings Surprise B+
and stable business, might also be affecting its competitors. It also Revenue 12 Mo. Tr. Latest $9.7B
reported very strong year-over-year profit growth, but not so when measuring full year profits against results from Revenue 12 Mo. Tr. 3Y Ago $6.6B
three years ago, showing very weak growth from a long term perspective despite the latest short term jump. Its Revenue 12 Mo. Tr. 3Y Chg. 47.52%
net income rose 26.60% to $212.70 million in its most recent quarter from $168.00 million (excluding
extraordinary items) in the year earlier period, while full year profit for the 12 months ended on June 30, 2010 of
$879.06 million was 7.30% higher than full year net of $819.28 million reported three years earlier. The
company's margin growth improved a little during its latest quarter, with a year-to-year average increase of 2.67%
in cash flow, operating and net margins, reversing a contraction reported in the previous quarter.
The company reported earnings on August 12, 2010 that were 2.00% higher than the analysts' consensus
estimate; however, the stock fell 0.60% following the announcement. Even though this report disappointed
investors, it extended a trend of positive earnings surprises, as it has surpassed analysts' estimates by an
average of 11.00% in the last three reports.

Net Income Qtrly. 06/30/2010 $213M

Net Income Qtrly. Year Ago $168M
Net Income 1 Yr. Chg. 26.6%
Net Income 12 Mo. Tr. Latest $879M
Net Income 12 Mo. Tr. 3Y Ago $812M
Net Income 12 Mo. Tr. 3Y Chg. 8.32%

Assuming the Company's Fundamentals Don't Deteriorate in Coming

Value B+ Quarters, the Stock's Valuation is Acceptable at this Level
CPFL Energia's stock is trading at at 12.52 times the company's 12-
Capital Structure Fmonth' trailing earnings per share, which represents a 91.33% discount to
the company's "optimum" P/E ratio of 144.31; we calculate this ratio
P/E Analysis A+
based on the company's two-year EPS growth rate based on rolling
Price/Book Ratio Aperiods of 12-month trailing earnings. In a few cases, such as CPFL
Energia, a single quarterly EPS value that is much higher than its ongoing
Price/Cash Flow Ratio Aearnings trend skews the growth rate distorting our optimum P/E ratio.
According to our calculation the company's earnings per share have P/E Ratio 12 Mo. Tr. 06/30/2010 12.52
Price/Sales Ratio A-
grown at a 60.84% annualized rate in the last two years compared to
Optimum P/E Ratio 144.31
34.88% and 21.15% in the last three and five years respectively.
Market Value CAssuming this growth rate is sustained in coming quarters, the company's Forward P/E Ratio 13.5
S&P 500 Forward P/E Ratio 15.20
margins may continue to expand if it maintains its current Profitability overall grade. This would bode well for the
stock in the future. Currently the stock also has a forward P/E of 13.50, which interestingly enough is higher than Price to (Tangible) Book Ratio 3.84
its trailing P/E but lower than the S&P 500's forward P/E of 15.20. Investors therefore see more value in the Price-to-Cash Flow Ratio 6.98
company's future earnings but not as much as they see in the market in general; coupled with the company's Price/Sales Ratio 1.13
strong fundamentals, this situation could represent an interesting but risky opportunity, meaning short term
volatility with the possibility of handsome returns in the long term.
CPFL Energia's current market value is only 3.84 times its total book value, a low valuation especially
considering the company doesn't include any intangible assets such as goodwill in its total stockholders' equity.
Therefore the market is assigning a low multiple to the company's future growth. Based on the $9.82 in cash flow
per share generated by the company in the last twelve months, at the current price of $68.59 the stock trades at
6.98 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its stock also
trades at 1.13 times trailing 12-month sales, a 11.76% discount to its sub-industry's average of 1.28. Our final
value indicator looks at the relationship between the company's current market capitalization and its operating
profits after deducting taxes. CPFL Energia's market capitalization of $11.00 billion is very rich considering it is
37.70 times the amount of quarterly net income plus depreciation most recently reported by the company.

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 September 28, 2010

CPFL Energia SA
NYSE: CPL - Electric Utilities 77.0
Company's Operations Are Very Profitable and Indicate a Solid
Profitability A- Business Environment
CPFL Energia's profitability indicators are generally pretty healthy despite
Yield Analysis A+
below-industry average operating margins based on 12-month trailing
results. The company earned net profits of $879.06 million, equivalent to
Capital Utilization A+
9.06% of all revenue booked during the same period and had a strong
Operating Margins return on equity. Operating profit during the period represented 15.27% of
B+
revenue, 28.68% lower than the Electric Utilities sub-industry average of
Relative Margins C
17.24%. CPFL Energia's return on equity, based on trailing 12-month
earnings, is not only outstanding at 30.69%, but it's higher than the
Return on Equity A
18.40% return on equity from the year earlier period. This is an important
metric of management efficiency in our grading system, as it measures
Quality of Revenues A+
the amount earned on an investment in the company's common stock.
Such impressive returns amply justify the company's leverage even though its total debt is 1.50 times its
shareholder equity. Its long term debt, which represents 56.20% of total capital is very adequate and shouldn't
raise any concerns at this time. CPFL Energia's $1.82 billion in twelve month trailing core earnings, or EBITDA,
shows a remarkable increase of 75.32% from the twelve months ended a year earlier, in which its core operations
generated $1.04 billion. EBITDA is used to measure the company's true earnings power by including interest
costs, income taxes, depreciation and amortization, all non-operating charges, which are nevertheless accounted
for in several EPS and net income measures of our fundamental analysis.

Company's Cash Flow Analysis Shows Mixed Results and Reveals a

Cash Flow B Few Operating Weaknesses
CPFL Energia's cash flow declined significantly last quarter to $275.28
Cash Flow Growth F
million, 18.26% lower than the year earlier quarterly cash flow of $336.77
million. What's more important and worth highlighting is the fact that up to
EBIDTA Margin B-
the most recent quarter the company's twelve month trailing cash flow
Debt/Cash Flow Ratio was growing very healthily, up 121.66% compared to the same period
A
ended a year before. This marks a sharp slowdown in the company's
Interest Cov. Capacity B-
business environment and is likely to put considerable pressure on its
margins. The company's 7.77 net debt to EBITDA ratio at the end of last Cash Flow Qtrly. 06/30/2010 $275M
Yield Analysis A+
quarter was almost unchanged from last year's 7.76, which suggests it
Cash Flow Qtrly Year Ago $337M
has no problems managing its leverage from the cash flow it generates
Dividend Yield B+
from operations. The ratio is based on $3.51 billion in net debt, defined as Cash Flow 1 Yr. Chg. (18.26%)
Cash Flow 12 Mo. Tr. Latest $1.6B
total debt minus cash on hand, and EBITDA of $452.54 million. In the last twelve months its total debt as a
percentage of total capital also increased, in this case by 3.76% from 57.87% a year ago to 60.04% in the Cash Flow 12 Mo. Tr. 3Y Ago $1.2B
company's latest quarter. However, CPFL Energia's cash on hand is now 101.16% more than it was a year Cash Flow 12 Mo. Tr. 3Y Chg. 28.93%
before, suggesting its increased leverage is well within its means to service it and might contribute to future Free Cash Flow Last Qtr. $44M
growth.
An important part of our analysis, our Economic Value indicator measures the company's profitability not only
after accounting for operating costs but also the cost of capital, both equity and debt. CPFL Energia had a total of Economic Value
$6.59 billion in invested capital as of last quarter, including all forms of equity and long term debt. The company's Total Invested Capital $7.2B
total after tax cost of capital of 6.03% is pretty evenly distributed between equity and debt at 1.07% and 3.12% Return on Inv. Capital 22.36%
respectively. When subtracting the total cost of capital from CPFL Energia's 22.36% return on investment, based Weighted Cost of Equity 3.12%
on 12-month trailing operating income, we arrive at 16.33% in economic value added (EVA). This number, which Weighted Cost of Debt 2.91%
measures the company's true economic profit in the last year, represents a solid return to its shareholders. The Total Cost of Capital 6.03%
company hiked its quarterly common dividend in its latest quarter, reported on December 31, 2009, to 2.74 cents Economic Value Added 16.33%
a share from 2.31 cents, a 18.95% increase. It has now been paying dividends regularly since December 31,
2005 and the stock's current yield is 7.36%. CPFL Energia spent a total of $676.25 million over the last 12 months
in common dividend payments, or 42.94% of its cash flow and 76.93% of total after tax earnings, an extremely
large payout ratio. Even though this ratio is slightly lower than the 81.05% of earnings paid out in the 12 months
ended just a quarter ago, it needs to be reduced more aggressively in order to avoid eroding the firm's liquidity
and damaging its balance sheet. At least the company's generally healthy fundamentals provide it with some
breathing room to make the necessary adjustments before the situation becomes dire.

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 September 28, 2010

CPFL Energia SA
NYSE: CPL - Electric Utilities 77.0
Profile
CPFL Energia S.A., through its subsidiaries, engages in the generation, distribution, and sale of Key Facts:
electricity in Brazil. It also procures and sells electricity to free consumers, other commercialization Rua Gomes De Carvalho 1510-14º
companies, and distribution utilities, as well as provides electricity-related services. As of December Sao Paulo , BRA 04547-005
31, 2009, the company had installed generation capacity of 1,737 megawatts; and distributed Phone:55 19 3756 6083
www.cpfl.com.br
electricity to approximately 6.6 million consumers. It serves residential, industrial, and commercial
customers. The company was founded in 1998 and is headquartered in Sao Paulo, Brazil.
Biggest Company in Sub-Industry
Southern Co (The) (SO)
Grade 61.6
Market Cap:$31.17 billion

Smallest Company in Sub-Industry

Maine & Maritimes Corp (MAM)
Grade 18.0
Market Cap:$75.06 million

MarketGrader Dilution Analysis Income Last Qtr 12 Mo.

Statement (06/2010) Trailing
Impact of Change in Shares on EPS - Q3 2010
Dilution Summary Revenue $2.2B $9.7B
*EPS Latest $1.33 Op. Income $373M $1.5B
*EPS Year Ago $1.05
Net Income $213M $879M
EPS Change 1 Yr. 26%
*EPS $1.33 $4.62M
C. Shares - Latest(M) 160
C. Shares - Yr Ago(M) 160 *Earnings per share are based on fully diluted net income per share
excluding extrodinary items. This number may not match the
C. Shares - 1Yr Chg. 0% headline number reported by the company.

EPS if Yr. Ago Shares $1.33

EPS Chg. if Yr. Ago 27%
EPS Loss from Dilution $0.00
Balance Sheet Latest

Total Assets $9.7B

*Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company.

Total Debt $4.3B

Stockholders Eq. $2.9B

All numbers in millions except EPS

Ratios
Price/Earnings (12 mo. trailing) 12.52

Price/Tangible Book 3.84

Price/Cash Flow 6.98

Price/Sales 1.13

Debt/Cash Flow 273.20

Return on Equity 30.69%

Gross Margin (12 mo. trailing) 20.39%

Operating Margin (12 mo. trailing) 15.27%

Total Assets $9.7B '05 '06 '07 '08 '09 '10
Net Profit Margin (12 mo. trailing) 9.06%
Intangible Assets 0 Qtr 1 0.38 1.14 0.00 0.00 0.00 0.00
Long Term Debt $3.7B Qtr 2 0.91 1.75 2.86 1.96 1.99 2.74
Total Debt $4.3B Qtr 3 0.00 0.00 0.00 0.00 0.00
Book Value $2.9B Qtr 4 0.32 2.21 2.63 1.74 2.31
Enterprise Value $3.5B

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 September 28, 2010

CPFL Energia SA
NYSE: CPL - Electric Utilities 77.0
Top Down Analysis
# Ticker Grade Sentiment Name Price Next EPS
1 NGG 83.98 N National Grid $43.41 N/A
Utilities
2 EOC 81.01 P Empresa Nacional De Electricidad Sa $54.66 11/28/2010
Stocks in Sector: 150 3 STR 79.16 N Questar Corp $17.46 10/26/2010
Buys: 22 (14.67%)
4 CPL 77.03 P CPFL Energia SA $68.59 11/10/2010
Holds: 15 (10.00%)
Sells: 113 (75.33%) 5 SBS 76.19 P Cia Saneamento Basico Do Estado De $43.10 11/16/2010
6 CEG 74.99 N Constellation Energy Group Inc. $32.08 10/25/2010
No. of stocks at:
52-Wk. High: 18 7 CNL 74.90 P Cleco Corp $29.46 11/01/2010
52-Wk. Low: 1 8 D 74.25 P Dominion Resources Inc. $44.26 10/25/2010
Above 50 & 200-day MA: 76
9 DPL 74.07 N DPL Inc. $26.05 10/28/2010
Below 50 & 200-day MA: 17
10 SPH 71.10 P Suburban Propane Partners LP $53.80 11/08/2010

# Ticker Grade Sentiment Name Price Next EPS

1 CPL 77.03 P CPFL Energia SA $68.59 11/10/2010
Electric Utilities
2 CNL 74.90 P Cleco Corp $29.46 11/01/2010
Stocks in Sub-Industry: 45 3 DPL 74.07 N DPL Inc. $26.05 10/28/2010
Buys: 9 (20.00%)
4 CIG 68.79 P Cia Energetica De Minas Gerais Cemig $15.76 11/15/2010
Holds: 5 (11.11%)
Sells: 31 (68.89%) 5 EXC 68.70 P Exelon Corp $43.09 10/18/2010
6 ENI 64.25 P Enersis SA $23.52 10/29/2010
No. of stocks at:
52-Wk. High: 5 7 ETR 63.60 N Entergy Corp. $77.25 10/21/2010
52-Wk. Low: 0 8 UNS 61.75 N UniSource Energy Corp $33.31 11/03/2010
Above 50 & 200-day MA: 27
9 SO 61.57 P Southern Co (The) $37.52 10/25/2010
Below 50 & 200-day MA: 4
10 ITC 58.05 P ITC Holdings Corp $62.60 10/25/2010

1. Price Trend. B+ 2. Price Momentum. C

7.4
3. Earnings Guidance. B 4. Short Interest. A+

Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to
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