Due to slower demand for utilities, and uncertainty over natural gas and power prices, analysts remain cautious on independent power companies.
Continued competition with coal-fired plants is also slower-than-forecast growth in demand for more environmentally friendly energy: Goldman Sachs lowered its outlook on independent power players and utilities companies to “neutral” from “attractive” on Wednesday (AP).
Analyst Michael Lapides downgraded NRG Energy (NRG) to “buy” from “conviction buy.” Citigroup analyst Brian Chin today downgraded NRG to “hold” from “buy” and lowered his target price from to $25 from $27 (Barron’s). In February, Deutsche Bank had initiated coverage on NRG with a “buy” and target price of $32 (StreetInsider). Earlier this month NRG was selected to receive up to $154 million in government funds for the building of a post-combustion carbon plant. (Zacks)
On Mar 12, Bank of America analyst Ameet I. Thakkar moved NRG to “neutral” from “buy” and lowered the price target to $24. BofA still thinks NRG is the premier company in the sector but that growth opportunities will likely take time to materialize.
Goldman also has a “buy” rating on Entergy (ETR)and Edison International (EIX) but with lowered price targets.Jefferies & Co upgraded Edison from Hold to Buy on Mar 12 and raised the Price target to $37.50 from $35. (StreetInsider).
Among large-cap regulated companies Goldman’s Lapides favors American Electric Power (AEP), and kept a “sell” rating on Ameren (AEE), Duke Energy (DUK), Consolidated Edison (ED) and Cleco Power. He added that his previous call to upgrade the group was premature. Deutsche Bank also remain buyers of AEP, CMS Energy (CMS) and ITC Holdings(ITC).
Citi analysts are recommending “buy”-rated Calpine (CPN) though “we continue to believe electric utilities will underperform the S&P500 over the next 12 months” (StreetInsider). Jefferies & Co had also upgraded Calpine to “buy” from “hold” earlier this month, and raised the price target of the company to $14.50 from $11.50 (Benzinga).
Meanwhile Fitch Ratings says North American refiners continue to struggle with poor fundamentals in the form of still-falling end-user demand in the U.S., global overcapacity, low industry utilization rates, a high U.S. unemployment rate, and possible new environmental regulations.
However, Mark Sadeghian, senior director at Fitch, said refiners have carried out positive steps to fight a possibly bad year. “Refiners as a group have responded vigorously and early to the downturn by paring back capital expenditures and operating costs, cutting shareholder distributions and employed a range of liquidity-enhancing measures.”
In its latest North American Refining Sector Outlook (Premium) Fitch has a “negative” outlook rating to all domestic refiners, so it looks like the sector won’t recover as quickly as some analysts had hoped.