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BofA says utilities are the understated beneficiary of the Biden Bid

Oct. 13, 2020 6:58 PM ETAEE, EIX, SRE, WEC, LNG, FSLR, NOVABy: Jason Aycock, SA News Editor1 Comment
  • In the newest example of sector evaluation in the context of a potential Joe Biden win in the presidential election, BofA says it's now "increasingly adamant" that the understated beneficiary is utilities.
  • Against a rally in other energy sector exposures to renewables growth, utilities' valuations are still near 30-year relative lows, even in spite of well-discussed potential outcomes for clean energy laws and tax reform.
  • At this point, the firm says, elevated valuations across alternative energy look hard to justify "without a 'clean sweep' win inclusive of Senate control, enabling an immediate clean energy agenda to translate to further, extended tax credits." BofA still sees Sunnova Energy International (NYSE:NOVA) as the clearest opportunity in clean tech; the bid for the wider sector is unlikely to be justified in the medium term and could turn over, it says.
  • President Trump's directive to increase Sect. 201 import tariffs on solar panels to 18% included a call for removing an exemption exclusion for bi-facial solar panels - an effort which had stalled with a ruling from the U.S. Court of International Trade rebuffing the efforts. That's a modestly incremental data point for First Solar (NASDAQ:FSLR) considering its exemption to tariff for unbooked capacity remaining in 2021. (That has a minimal impact to residential solar, BofA notes, since residences don't use the bi-facial panels.)
  • It's staying Neutral Ameren (NYSE:AEE), expecting that a 4% dividend hike marks a cautious data point about the board's views on future EPS growth (the 4% growth rate doesn't support an increase in its payout ratio).
  • Meanwhile, it's sticking with an Underperform rating on WEC Energy (NYSE:WEC), as expectations for a robust Wisconsin recovery are dinged by the state's Economic Development Corp. denying Foxconn's eligibility for 2019 tax credits.
  • As for Southern California Edison's (NYSE:EIX) potential role in California's fires, an SCE letter to regulators about tree branch contact causing the Bobcat fire is incrementally cautious for EIX, the firm says.
  • And on Sempra Energy (NYSE:SRE), BofA notes the Cameron LNG resumed production after getting the green light from a disaster assessment team that found no Hurricane Delta damage - and Cheniere Energy's (NYSEMKT:LNG) Sabine Pass LNG facility was operational during the storm.

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