(By Balachander) Consolidated Edison Inc. (NYSE: ED) shares were upgraded to "sector perform" from "underperform" by RBC Capital Markets based on recent underperformance combined with proven defensive characteristics.
RBC, which lowered its price target on the stock to $60.00 from $63.00, sees little reason for the stock to materially underperform over the longer term while expecting some political rhetoric to impact ConEd's stock over the very near term.
Since the advent of Hurricane Sandy, Consolidated Edison (ConEd) is down 6.8 percent versus a defensive peer group move of -4.2 percent and the S&P 500 at -1.3 percent, the brokerage said. Others affected include FirstEnergy (NYSE: FE) and PSEG, which have seen similar stock movement.
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"However, ED is the most regulated of the three, with virtually no exposure to commodity prices," RBC wrote.
RBC said its lower multiple on 2013 P/E includes the risk of somewhat lower earnings from the upcoming rate case filings at Consolidated Edison of New York (CECONY). The brokerage currently assumes a 9.8 percent ROE for the CECONY electric rate case that will be filed this month, along with gas and steam rate cases.
"Despite the price target reduction, our total return comes in around 11 percent, which does not justify an Underperform rating," RBC said.
"The timing of our upgrade is a little awkward, as New York Gov. Cuomo has made it quite clear that he plans to go after the New York utilities that do not perform to his satisfaction," the brokerage added.
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"While we expect that most of the costs ConEd incurred to restore power will be recoverable over time, we expect a big part of the cost to be deferred," RBC wrote. "Uncertainty could arise if the governor decides to nominate new commissioners, as three of the current five commissioners are serving beyond their respective term."
The stock, which has been trading in a 52-week range of $55.80 to $65.98, gained 1.08 percent to trade at $56.87 on Thursday.