Deutsche Bank Raises Price Targets on Top Utilities as Rates Stay Low

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A couple of years ago, the utilities were among the hottest in the S&P 500 as interest rates were driven to the lowest levels since the 1950s as the Federal Reserve pulled out all the stops to generate economic growth. Although growth was hard to come by, the unemployment numbers continued to drift down and at the end of 2015, the Fed finally raised rates for the first time in years.

Since then, the Fed has raised rates twice, and long-term rates have basically gone nowhere as the yield curve has flattened. Utility stocks have acted much better than expected this year, up 6%, which is slightly better than the S&P 500. In a new research report, Deutsche Bank remains very selective on the industry and carefully raised the price targets on five stocks that are rated Buy.

American Electric Power

This industry leader is also a solid dividend-paying company, one that some on Wall Street feel could beat earnings estimates. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states.

It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

American Electric Power shareholders are paid a solid 3.56% dividend. The Deutsche Bank price objective on the shares was raised to $72 from $70. The Wall Street consensus target price is $68.08. The stock closed on Monday at $67.50 a share.

CMS Energy

This stock offers a solid dividend and good upside potential. CMS Energy Corp (NYSE: CMS) operates as an energy company primarily in Michigan through three segments. The Electric Utility segment engages in the generation, purchase, transmission, distribution and sale of electricity to residential, commercial and diversified industrial customers in lower Michigan.

The Energy Utility segment is involved in the purchase, transmission, storage, distribution and sale of natural gas. This segment’s gas transmission, storage and distribution system comprises 1,686 miles of transmission lines; 15 gas storage fields with a total storage capacity of 309 billion cubic feet and a working gas volume of 151 billion cubic feet; 27,537 miles of distribution mains; and seven compressor stations with a total of 157,939 installed and available horsepower.

The Enterprises segment engages in the independent power production and marketing activities.

CMS Energy shareholders are paid a 2.96% dividend. Deutsche Bank raised its price objective to $48 from $47, and the posted consensus price target is $45.24. The shares closed most recently at $44.60.