We maintain our Buy recommendation on Puget Energy Inc. (PSD) with a six-month target price of $30.00. Price appreciation to our near-term valuation target, combined with the $0.25 quarterly dividend, which we deem sustainable and secure based upon reasonable projected payouts represents an annualized total return potential of 27.2%.

Our recommendation is supported by the company's pending takeover by a consortium of private investors for $30 per share. Furthermore, the offer price sometime during the latter-half of 2008 became, as of the date of this report, more attractive following the recent decline in share price.

Puget Energy continues to be a low-cost energy provider in a growing service area. Going forward, authorization of the company's recently filed electric rate case and the recent WUTC approval of the multi-party settlement in the Power Cost Only Rate Case should prove to be modestly positive catalysts in the short-run.

Furthermore, in the long-run, the addition of low-cost wind, hydroelectric, thermal and other renewable power supplies to the company's generation portfolio should provide a cost advantage for the utility as it meets growing customer demand.

However, some risks remain in the form of uncertainty over the ultimate success of the merger as well as lower electricity pricing. In addition, other risks associated with a weak balance sheet, higher cost of debt and increasing operations and maintenance expenses are expected to result in billions of dollars of maintenance and growth capex spending and negative free cash flow over the next few years.

PSD's $1.00 per share annual dividend currently yields an attractive, above-industry average 3.7%. There is a high probability of a high return sometime during the latter-half of 2008, combined with a moderately bullish outlook partially offset by several unfavorable company-specific financial factors.