Analyst Sees Mixed Outlook For Low-risk Utilities

NEW YORK (AP) — Tightening corporate bond yields and weakness in near-term industrial production prompted an analyst on Tuesday to simultaneously raise price targets and cut profit estimates for certain defensive electric utilities.

Citi Investment Research analyst Brian Chin said lower-risk defensive electric utilities still demonstrate the best risk-reward profile, but compared to two months ago, when shares were cheaper, they stand out less attractively from higher-risk utilities. Since June, this group of lower-risk utilities climbed 10.5 percent, compared with the 2 percent increase of higher-risk utilities.

Despite an overall message from electric utilities that a recovery remains several quarters away, Chin said several macro factors signal that an industrial recovery is nearing, which could justify a more risk-tolerant stance.

Chin's favorite utility in the group is American Electric Power Inc. He raised the company's price target to $36 from $32. Still, given a weak industrial production outlook for the second half of the year, Chin cut American Electric's profit estimate to $2.74 per share, from a previous forecast of $2.85 per share.

He also raised his price target for Consolidated Edison Inc. to $43 from $40, PG&E Corp. to $48 from $43.20, Pinnacle West Capital Corp. to $32 from $29.30, and Southern Company to $32 from $31.50. Chin cut his profit estimates for all of these companies.