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TheStreet Open House

3 Big Sectors May Face Post-Sandy Downgrades: Moody's

Stocks in this article: VZEDHDWMTCZRBYDWAG

NEW YORK ( TheStreet) -- Just over a week after Hurricane Sandy made landfall, ratings agency Moody's sees the storm as a hit to the earnings of telecom's, casinos and utilities exposed to the still crippled region.

While Moody's analysis of the impact of Hurricane Sandy mirrors other projections from the likes of Goldman Sachs, Bank of America and Credit Suisse, the rating agency's calculation of the extent of the storm's damage to the earnings of some sectors may cause the agency to downgrade the bond ratings of already struggling companies and industries.

In particular, Moody's highlights that the ratings of Atlantic City casino's are most at risk as they suffer what may be a 25% drop in revenue through the first quarter of 2013, which could cut profits by as much as 50%. The agency highlights the recently opened Revel Atlantic City casino and the Marina District Finance Company as most at risk of a downgrade.

Moody's also sees an impact to regional utilities like Con Ed (ED), Public Service Electricity and Gas and FirstEnergy (FE), owner of Jersey Central Power & Light. For wireline telecom operators like Verizon Communications (VZ), Hurricane Sandy may cut at overall quarterly revenue and earnings, but only marginally so.

If some businesses are hit by Sandy, others may find an opportunity as businesses and homeowners in states like New Jersey, New York and Connecticut begin rebuilding efforts. Moody's says Building Materials Corporation of America and New Enterprise Stone and Lime may see an earnings benefit in coming quarters that could translate to a ratings upgrade.

The ratings agency forecasts a negligible impact on the overall retail sector, but highlights home improvement stores Home Depot (HD) and Lowe's (LOW), in addition to discount giants Wal Mart (WMT) and Target (TGT) as some companies that may benefit. Drug stores like Walgreen (WAG) and Rite Aid (RAD) may also see an earnings boost.

While Moody's analysis closely mirrors other Sandy-related estimates, the agency's comments about the already-struggling Atlantic City casino industry breaks new ground in just how damaging the storm was.

"We expect Atlantic City revenues to be down 25% in both the fourth quarter of 2012 and the first quarter of 2013, excluding the effect of any insurance recoveries," writes credit analysts Keith Foley and Peggy Holloway, in a Tuesday ratings note. The analysts said the already junk rated Revel Atlantic City casino may be most at risk of a downgrade, while other low-rated casinos like Caesars Entertainment (CZR) and Tropicana Entertainment may also face the prospect of a cut.

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